EX-99.D 2 d563992dex99d.htm EX-99.D EX-99.D

Exhibit 99.D

Description of

República Oriental del Uruguay

July 9, 2013

 

D-1


TABLE OF CONTENTS

 

     PAGE  

Introduction

     D-3   

Summary

     D-5   

República Oriental Del Uruguay

     D-6   

The Economy

     D-12   

Gross Domestic Product and Structure of the Economy

     D-20   

Foreign Merchandise Trade

     D-35   

Foreign Trade on Services

     D-39   

Balance of Payments

     D-41   

Monetary Policy and Inflation

     D-45   

The Banking Sector

     D-52   

Securities Markets

     D-64   

Public Sector Finances

     D-65   

Fiscal Policy

     D-70   

Public Sector Debt

     D-74   

Tables and Supplemental Information

     D-87   

 

D-2


INTRODUCTION

All references in this document to the “government” are to the government of the República Oriental del Uruguay (“Uruguay”) and references to the “central government” are to the central government of Uruguay (which includes governmental agencies and subdivisions and excludes financial and non-financial public sector institutions). All references in this document to the “consolidated public sector” are to the central government and financial and non-financial public sector institutions, excluding Banco de la República Oriental del Uruguay and Banco Hipotecario.

The terms set forth below have the following meanings for the purposes of this document:

 

   

Gross domestic product, or GDP, means the total value of final products and services produced in Uruguay during the relevant period, using nominal prices. Real GDP instead measures GDP based on 2005 prices (in accordance with the Integral Revision of the National Accounts published by Banco Central del Uruguay (“Banco Central”) in March 2009) to eliminate distortions introduced by changes in relative prices.

 

   

Imports are calculated based upon (1) for purposes of foreign trade, statistics reported to Uruguayan customs upon entry of goods into Uruguay on a cost, insurance and freight included basis (referred to as CIF basis) and (2) for purposes of balance of payments, statistics collected on a free on board basis at a given departure location (referred to as FOB basis).

 

   

Exports are calculated based upon (1) for purposes of foreign trade, statistics reported to Uruguayan customs upon departure of goods from Uruguay on a free on board, or FOB, basis and (2) for purposes of balance of payments, statistics collected on a FOB basis.

 

   

Rate of inflation or inflation rate is measured by the December to December percentage change in the consumer price index or CPI, unless otherwise specified. The CPI is calculated on a weighted basket of consumer goods and services using a monthly averaging method. December to December rates are calculated by comparing the indices for the latest December against the indices for the prior December.

References herein to “US$,” “$,” “U.S. dollars” or “dollars” are to United States dollars. References herein to “Uruguayan pesos,” “pesos,” or “Ps.” are to the lawful currency of Uruguay. Unless otherwise stated, Uruguay has converted historical amounts translated into U.S. dollars or pesos at historical annual average exchange rates. References to “Euro” or “€” are to the lawful currency of the Member States of the European Union that have adopted the single currency in accordance with the treaty establishing the European Community, as amended by the Treaty on European Union. References to “JPY” or “yen” or “¥” are to Japanese yen. Translations of pesos to dollars, Euros or yen (or dollars to Euros or yen) have been made for the convenience of the reader only and should not be construed as a representation that the amounts in question have been, could have been or could be converted into dollars, euros or yen at any particular rate or at all.

 

D-3


The Federal Reserve Bank of New York does not report a noon buying rate for Uruguayan pesos.

The fiscal year of the government ends December 31. Accordingly, all annual information presented herein is based upon January 1 to December 31 periods, unless otherwise indicated. Totals in some tables in this document may differ from the sum of the individual items in those tables due to rounding.

Uruguay’s official financial and economic statistics are subject to a review process by Banco Central and the Uruguay National Statistics Institute. Accordingly, the financial and economic information in this document may be subsequently adjusted or revised. Certain of the information and data contained herein for 2008, 2009, 2010, 2011 and 2012 is preliminary, and subject to further adjustment or revision. The government believes that this practice is substantially similar to the practices of many industrialized nations. The government does not expect revisions to be material, but cannot assure you that material changes will not be made.

Historically, deposits of the non-financial public sector held with Uruguay’s banking system were deducted from Uruguay’s gross public sector debt. According to a new methodology adopted by the government in March 2013, deposits of the non-financial public sector held with Uruguay’s banking system are not deducted from Uruguay’s gross public sector debt and are recorded as non-financial public sector assets. Figures for previous years have been restated following this new methodology.

 

D-4


SUMMARY

 

    2008(1)     2009(1)     2010(1)     2011(1)     2012(1)  
    (in millions of US$, except as otherwise indicated)  

THE ECONOMY

         

GDP (in millions of US$ at nominal prices)(2)

  US$ 30,387      US$ 30,251      US$ 38,863      US$ 46,460      US$ 49,928   

Real GDP (in thousands of constant 2005 pesos)(2)

  Ps. 505,207      Ps. 516,552      Ps. 562,768      Ps. 599,521      Ps. 623,114   

% change from prior year

    7.2     2.2     8.9     6.5     3.9

Consumer price index or CPI (annual rate of change)

    9.2     5.9     6.9     8.6     7.5

Wholesale price index or WPI (annual rate of change)

    6.4     10.5     8.4     11.1     5.9

Unemployment rate (annual average)(3)

    7.7     7.3     6.8     6.0     6.1

Balance of payments(4)

         

Trade balance (merchandise)

    (1,714     (504     (527     (1,431     (2,310

Current account

    (1,729     (382     (753     (1,367     (2,626

Capital and financial account net

    3,098        1,184        1,085        4,202        4,002   

Errors and omissions(5)

    864        786        (693     (270     1,911   

Overall balance of payments excluding impact of gold valuation adjustment

    2,232        1,588        (361     2,564        3,287   

Change in Banco Central international reserve assets (period end)

    (2,232     (1,588     361        (2,564     (3,287

Banco Central international reserve assets (period end)(6)

    6,360 (7)      7,987 (8)      7,656 (9)      10,302 (10)      13,605 (11) 

PUBLIC FINANCE

         

Non-Financial Public Sector Revenues

    8,161        8,780        11,732        13,481        14,200   

Non-Financial Public Sector Primary Expenditures

    7,821        8,536        11,075        12,648        14,319   

Public Sector Primary Balance

    417        358        756        923        (80

Public Sector Overall Balance (surplus/(deficit))

    (473     (523     (430     (434     (1,380

PUBLIC DEBT

         

Consolidated public sector debt

         

Debt with non-residents(12)

    10,736        12,770        12,822        14,055        16,195   

Debt with residents

    6,955        10,190        11,060        12,985        14,853   

Total

    17,691        22,960        23,882        27,040        31,048   

As a % of GDP

    56.9     73.0     58.9     56.0     62.1

Consolidated public sector debt service

         

Amortizations

    750        438        926        1,939        1,892   

Interest payments

    604        527        580        595        525   

Total

    1,354        965        1,506        2,534        2,417   

As a % of exports of goods and services

    14.5     11.1     13.0     19.7     18.2

 

(1) 

Preliminary data.

(2) 

Figures are not adjusted by purchasing power.

(3) 

Unemployment population as percentage of the labor force.

(4) 

Calculated in accordance with the methodology set forth in the IMF Balance of Payments Manual (Fifth Edition).

(5) 

Constitutes a residual item, which is periodically revised as additional information regarding the current and capital and financial accounts becomes available.

(6) 

As presented in this chart, gold reserves have been valued at their corresponding market prices as of December 31, 2008, 2009, 2010, 2011 and 2012.

(7) 

This amount includes US$3,156 million of reserves and voluntary deposits of the Uruguayan banking system, including US$1,428 million of Banco de la República and other public sector financial institutions, with Banco Central.

(8) 

This amount includes US$2,521 million of reserves and voluntary deposits of the Uruguayan banking system, including US$1,140 million of Banco de la República and other public sector financial institutions, with Banco Central.

(9) 

This amount includes US$1,590 million of reserves and voluntary deposits of the Uruguayan banking system, including US$792 million of Banco de la República and other public sector financial institutions, with Banco Central.

(10) 

This amount includes US$2,350 million of reserves and voluntary deposits of the Uruguayan banking system, including US$1,108 million of Banco de la República and other public sector financial institutions, with Banco Central.

(11) 

This amount includes US$3,969 million of reserves and voluntary deposits of the Uruguayan banking system, including US$1,642 million of Banco de la República and other public sector financial institutions, with Banco Central.

(12) 

Excludes interest on non-resident banking deposits.

Source: Banco Central.

 

D-5


REPÚBLICA ORIENTAL DEL URUGUAY

Territory and Population

Uruguay is located in the southern, subtropical zone of South America, bordering Argentina to the west and Brazil to the northeast. Its territory covers an area of approximately 176,000 square kilometers with a 500-kilometer coastline along the Atlantic Ocean and the Río de la Plata. Uruguay’s major cities are Montevideo, the nation’s capital and main port, Paysandú, Salto and Las Piedras.

According to the 2011 national census, Uruguay’s population of approximately 3.3 million is primarily of European origin and has a literacy rate above 98%. Approximately 95% of the population lives in urban areas and about 40% of the population resides in the Montevideo metropolitan area. The population growth rate averaged 0.2% per year for the period from 1985 to 2011, and is the lowest in South America. Uruguay is generally considered a middle-income developing country. The following table sets forth comparative gross national income (“GNI”) figures and selected other comparative statistics as of December, 2012, unless otherwise indicated.

 

     Uruguay     Brazil     Chile     Venezuela     Mexico     United
States
 

Per capita GNI(1)

   US$ 11,860      US$ 10,720      US$ 12,280      US$ 11,820      US$ 9,420      US$ 48,620   

PPP GNI per capita(2)

   US$ 14,640      US$ 11,420      US$ 16,300      US$ 12,430      US$ 16,720      US$ 48,820   

Life expectancy at birth(3)

     76        73        79        74        77        79   

Adult literacy rate(4) (5)

     98.1     90.3     98.6     95.5     93.1     n.a.   

Infant mortality per 1000 live births(6)

     9        14        8        13        13        6   

 

n.a. = not available.

 

(1) 

World Bank Atlas method.

(2) 

Current US$, adjusted for purchasing power parity.

(3) 

2011 data. In years.

(4) 

Percentage of people ages 15 and older.

(5) 

2011 data, except for United States.

(6) 

2011 data.

Source: The World Bank—World Development Indicators database and CEPAL.

Constitution, Government and Political Parties

Uruguay is organized politically as a republic and is geographically divided into 19 departments (districts). The 1967 Constitution, which was last amended in 2004, provides for a presidential system of government composed of three branches: executive, legislative, and judiciary. The president heads the executive branch and is chief of staff and commander of the armed forces. The president is elected by direct popular vote for a period of five years and may not seek re-election for consecutive terms. Under Uruguay’s electoral system established under the 1996 constitutional reform, each political party selects a single candidate for presidential elections. If no candidate wins more than 50% of the vote in the first round of elections, a run-off between the two leading candidates is held. The legislative branch is composed of a 31-member Senate and a 99-member Chamber of Deputies, which together constitute the Congress. Members of Congress are elected every five years by direct popular vote under a system of proportional representation. The Supreme Court is composed of five judges appointed for 10-year terms by the Congress. The Supreme Court has jurisdiction over selected constitutional matters and appellate jurisdiction over decisions rendered by lower courts. Uruguay’s judicial system consists of trial and appellate courts with jurisdiction in each case over civil, criminal, family and labor matters. In addition, Uruguay has an administrative court system with jurisdiction over a number of public sector matters.

 

D-6


Uruguay has been a democratic country throughout most of its history since it became an independent nation in 1825. The country’s democratic tradition was interrupted twice during the last century: once briefly in the 1930’s and again during the period from 1973 to 1985. In June 1973, a military junta took over power, dissolved Congress, and suspended all voting activity. Military rule continued until November 1984, when democratic elections were held and voters elected Julio María Sanguinetti as president.

Politics in Uruguay are dominated by three political parties: the Frente Amplio (Broad Front), the Partido Colorado and the Partido Nacional. Since appearing on Uruguay’s political landscape in 1971 as a coalition of, among others, the Christian Democratic, Socialist and Communist parties, the Frente Amplio gained increasing support and, in October 2004, won victories in the presidential and the congressional elections.

Until the 2004 presidential and congressional elections, Uruguay’s two traditional political parties, the Partido Colorado and the Partido Nacional, had alternated holding the presidential office. Each of these two parties is composed of multiple political factions, typically with different political orientations, but without strong ideological differences. The Partido Colorado and the Partido Nacional, which were formed in the 1830s, are both market-oriented and favor trade liberalization and reducing the government’s role in the economy, although some factions within each of those parties favor moderate trade protection and some degree of government intervention. Traditionally, the Partido Nacional has had a strong rural constituency, while the Partido Colorado has drawn most of its support from urban areas. The Frente Amplio advocates a moderate social welfare platform. A fourth political party, the Partido Independiente, is a center-left group which split from the Frente Amplio prior to the 1989 elections.

Presidential elections were held on October 25, 2009. Mr. José Alberto Mujica from Frente Amplio received 47.96% of the votes cast, Mr. Luis Alberto Lacalle from Partido Nacional received 29.07% of the votes cast, and Mr. Pedro Bordaberry from Partido Colorado received 17.02% of the votes cast. Based on these results, Mr. Mujica and Mr. Lacalle participated in the runoff election on November 29, 2009, and Mr. José Alberto Mujica of the Frente Amplio won the national presidential election with approximately 52% of the votes cast. Mr. Mujica took office in March 1, 2010 succeeding Mr. Tabaré Vázquez who is also a member of Frente Amplio. In the Congressional elections also held on October 25, 2009, the Frente Amplio retained a majority of both houses of Congress.

 

D-7


The Congressional representation of each of the four parties for the 2010-2015 term is as follows:

 

     Senate     Chamber of Deputies  
     Seats      %     Seats      %  

Frente Amplio

     17         55     50         50.5

Partido Nacional

     9         29        30         30.5   

Partido Colorado

     5         16        17         17   

Partido Independiente

     0         0        2         2   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total(1)

     31         100     99         100
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) 

The Vice President, currently Danilo Astori of the Frente Amplio, occupies the thirty-first seat in the Senate.

Although the Frente Amplio retained majorities in both houses of Congress, Mr. Mujica, has expressed an intention to seek consensus with the Partido Colorado, the Partido Nacional and the Partido Independiente with respect to key areas of government, including macroeconomic and social policies, education and foreign relations.

Since 2005, the Frente Amplio maintains the following goals of economic policy:

 

   

reaching a sustainable level of economic growth supported by a steady development of Uruguay’s productive capacity and productivity;

 

   

reducing unemployment and improving the quality of employment; and

 

   

advancing the quality of life of the population, focusing on the urgent need to improve the living conditions of the poorest segments of the population.

Foreign Policy and Membership in International and Regional Organizations

Uruguay has had no significant regional or international conflicts in recent years. The Republic has focused its foreign policy on international economic, political and legal issues and on the development of international arrangements aimed at improving economic cooperation among nations, conflict resolution and international law. Uruguay maintains diplomatic relations with 137 countries and is a member of 105 international organizations, including:

 

   

the United Nations (founding member), including many of its specialized agencies;

 

   

the Organization of American States;

 

   

the World Trade Organization;

 

   

the International Monetary Fund or the IMF;

 

   

the International Bank for Reconstruction and Development or the World Bank;

 

   

the International Finance Corporation;

 

   

the Multilateral Investment Guaranty Agency;

 

   

the International Centre for Settlement of Investment Disputes;

 

   

the Inter-American Development Bank or the IADB;

 

D-8


   

the Inter-American Investment Corporation; and

 

   

the Corporación Andina de Fomento or the CAF.

Uruguay maintains close ties to its neighboring countries and participates in several regional arrangements designed to promote cooperation in trade and investment. It has been the host country for the Latin American Integration Association, a regional external trade association that includes ten South American countries in addition to Mexico, Cuba, Panamá and Nicaragua since its creation in 1960.

In March 1991, the governments of Argentina, Brazil, Paraguay and Uruguay signed the Mercosur Treaty. Under the Mercosur Treaty, these four countries originally pledged:

 

  (1) to create a full common market in goods, services and factors of production by eliminating or significantly reducing, in some cases over a period of years, import duties, tariffs and other barriers to trade among members; and

 

  (2) to establish common external tariffs for trade with non-members.

In December 1994, the four members of Mercosur signed an agreement establishing January 1, 1995 as the deadline for the implementation of a common external tariff intended to transform the region into a customs union. The common external tariff regime became effective on January 1, 2001. However, it was also agreed that each member country would be entitled to take exceptions to the common external tariff for a transitional period scheduled to end in 2008 for Argentina and Brazil, and in 2010 for Paraguay and Uruguay. These periods have recently been extended, allowing Argentina and Brazil to maintain their list of exceptions until December 31, 2015, Uruguay until December 31, 2017, and Paraguay until December 31, 2019. Accordingly, the full implementation of a customs union has been deferred. See “The Economy—The Mercosur Agreements.”

As a result of the impeachment of former President Mr. Lugo in June 2012 and his destitution by the Paraguayan Congress, Paraguay was temporarily suspended as a Mercosur member in July 2012. In addition, in July 2012, Mercosur members (other than Paraguay) admitted the Republic of Venezuela as a full member of Mercosur. Venezuela is required to adopt the Mercosur common external tariff by 2016.

Since the establishment of Mercosur, Mercosur members have entered into the following trade agreements:

 

Year Signed

  

Year Effective

  

Country/Economic

Region

  

Description of

Agreement

1996    1996    Chile    Tariff elimination for certain goods up to 2014
1996    1997    Bolivia    Free trade zone starting in 2006
2003    2005    Andean Community(1)    Gradual free trade zone for certain goods until 2020
2005    2006    Peru    Gradual free trade zone for certain goods until 2021
2006    2008    Cuba    Tariff elimination for certain goods
2007    2009    Israel    Tariff elimination for certain goods until 2029
2004    2009    India    Tariff elimination for certain goods
2010    Pending    Egypt    Free trade area for certain goods

 

(1)

The Andean Community is a customs union among Bolivia, Colombia, Ecuador and Perú.

 

D-9


In December 1995, Mercosur and the European Union signed a framework agreement for the development of free trade between them and are currently engaged in the negotiation of a free trade agreement. While the parties have made progress in several areas, Mercosur has conditioned the agreement upon the European Union making significant concessions with respect to trade in agricultural products and the EU’s common agricultural policy, at least insofar as it impacts Mercosur.

Mercosur and the United States, which had suspended negotiations in 2004, have resumed negotiations surrounding the hemisphere-wide Free-Trade of the Americas Agreement (FTAA) pursuant to the 1991 “Four Plus One” Agreement. The negotiations have revealed important differences between the parties, and there can be no assurance that an agreement will be reached within the near term, as originally contemplated.

Significant trade imbalances among Mercosur countries developed over time as a result of various factors. These imbalances have prompted discussions and negotiations among the members of the member states that to date have not resulted in the convergence of the national economies, an objective stated on several occasions pursued. Argentina’s crisis in 2001 and its long-lasting effects have adversely affected trade within Mercosur and with non-Mercosur countries and the timely implementation by Mercosur of the objectives set forth in the Mercosur Treaty of 1991, in particular the customs union. It also triggered the adoption of various safeguard measures and caused indefinite delays in Mercosur’s ability to achieve the macroeconomic coordination and stability sought by its member states. Uruguay continues to support the long-term objectives contemplated in the Mercosur Treaty, while pursuing measures intended to maximize access to export markets by Uruguayan products in the short and medium term.

Uruguay has entered into the following bilateral treaties related to trade and investment:

 

2004    United Mexican States    Free Trade Agreement
2004    Iran    Bilateral Trade Framework Agreement
2006    United States of America    Bilateral Investment Promotion Treaty
2007    United States of America    Trade and Investment Framework Agreement
2008    United States of America    Cooperation Agreement in Science and Technology
2008    India    Bilateral Investment Treaty
2009    South Korea    Bilateral Investment Treaty
2009    Chile    Public Procurement Agreement
2009    Vietnam    Bilateral Investment Treaty
2009    Venezuela    Economic Cooperation Agreement
2010    Chile    Bilateral Investment Treaty

 

D-10


In March 2009, Uruguay and Brazil signed an energy cooperation agreement for the development of an electrical transmission line, to facilitate interconnectivity of both countries’ energy networks. The line is expected to be functioning by 2014 with a transmission capacity of 500MW. See “Gross Domestic Product and Structure of the Economy—Principal Sectors of the Economy—Electricity, Gas and Water.”

 

D-11


THE ECONOMY

History and Background

In the 1980’s, Uruguay’s economy was affected by a crisis of its financial system, followed by a severe recession. A deterioration in its external debt to GDP and exports ratios led the Republic to negotiate a rescheduling of its maturing debt obligations within the framework of the Brady Plan in 1991. In the early 1990’s, the government took steps to increase private sector involvement in the economy (including foreign investment in previously restricted areas), and reduced the size and influence of the public sector in the economy. Following a modest 0.9% increase in real GDP in 1990, a new recovery began in mid-1991, and real GDP increased steadily between 1991 and 1994 at an average cumulative annual rate of 5.2%.

The economic liberalization policies of the 1990s, while stimulating improvements in productivity and economic growth, also increased the exposure of Uruguay’s economy to regional and international economic developments. The absence of capital controls facilitated a gradual dollarization of the assets and liabilities of the banking system. A loss of investor confidence in certain countries in the region, capital flight and a resulting contraction of economic activity followed the Mexican peso devaluation in December 1994. Argentina, one of Uruguay’s principal trading partners and sources of direct foreign investment, was particularly affected. The contraction in aggregate demand in neighboring countries, particularly Argentina, was coupled with a decrease in Uruguay’s private demand and public sector investment. In 1995, real GDP contracted by 1.4% as compared to 1994. Uruguay’s economy recovered with real GDP growth of 5.0% on average from 1996 to 1998 fueled mainly by increased exports and growth in gross fixed investment, particularly private sector investment, which in turn stimulated private consumption. During this period, the financial and insurance services sector grew in real terms and as a percentage of GDP.

The Mercosur Agreements

The execution and implementation of Mercosur represented Uruguay’s single most important foreign trade endeavor, as it was expected to offer Uruguayan companies access to a common market of approximately 200 million people. On January 1, 2000, internal tariff rates among Mercosur countries were reduced to zero, with the exception of sugar and automobiles.

With the establishment of the common external tariff in January 1995, the members of Mercosur agreed to cause a gradual convergence of their respective external trade regulations over a five-year period. A common external tariff became effective on January 1, 2001. However, each member of the Mercosur retained some degree of flexibility intended to gradually allow certain industries to enhance their competitiveness, and had the ability to take specific exceptions to the common external tariff (initially 300 each) over a transitional period. Argentina and Brazil are currently entitled to 100 exceptions each and Uruguay and Paraguay are currently entitled to 225 and 649 exceptions, respectively. In the case of capital goods, telecommunications and information technology products, the Mercosur agreed that Uruguay and Paraguay could take exception from the common internal tariff (with rates of 0% until 2013 and 2% until 2016, respectively) with respect to tariff imports of non-Mercosur origin. In addition, the Mercosur countries have agreed to coordinate policies in certain areas, including agriculture, industry, transport and trade in services, to reduce or eliminate imbalances, and several working groups are currently engaged in policy coordination negotiations.

 

D-12


In March 2001, Argentina unilaterally increased import tariffs on consumer goods to 35% and eliminated all import tariffs on capital goods, in each case for non-Mercosur products and on a transitional basis. In June 2001, Argentina further modified its foreign exchange regime to subsidize exports and tax imports. The devaluation of the Argentine peso in January 2002, and other measures taken by the Argentine government brought Argentina’s foreign trade to a virtual standstill in the first quarter of 2002. The Argentine crisis adversely affected trade within Mercosur and with non-Mercosur countries and the timely implementation by Mercosur of the objectives set forth in the Mercosur Treaty of 1991, in particular the customs union. Uruguay maintains certain duties affecting imports of certain Argentine products whose producers are entitled to regional or sectoral subsidies. It also caused indefinite delays in Mercosur’s ability to achieve the macroeconomic coordination and stability sought by the December 2000 understanding on common macroeconomic targets. Uruguay continues to support the long-term objectives contemplated in the Mercosur Treaty and the December 2000 understanding, recognizing the short and medium-term need to maximize access to other export markets by Uruguayan products.

As a result of the impeachment of former President Mr. Lugo in June 2012 and his destitution by the Paraguayan Congress, Paraguay was temporarily suspended as a Mercosur member in July 2012. In addition, in July 2012, Mercosur members (other than Paraguay) admitted the Republic of Venezuela as a full member of Mercosur. Venezuela is required to adopt the Mercosur common external tariff by 2016.

Certain barriers to the comprehensive regional integration initiated by Mercosur continue to exist. Fitosanitary border inspections and other bureaucratic border procedures still lack uniformity among Mercosur member countries and are onerous in many instances, causing delays in trade. Rules on intellectual property, antitrust and the environment, among other things, are different in each of the Mercosur countries, and while certain mechanisms for dispute resolution have been established, comprehensive mechanisms are still under development. In December 2002, Mercosur approved common antitrust procedures implementing a 1996 Antitrust protocol. This agreement constitutes a step towards the elimination of antidumping claims among members. Trade in services, such as financial and banking services, has not been uniformly liberalized, with countries like Uruguay having a financial system which is open to non-Uruguayan participants while countries like Brazil allow only limited participation of non-Brazilian banks in their financial system. Roads, bridges and railways must also be developed to further facilitate trade. In December 1997, the Mercosur members agreed to a framework agreement for the liberalization of the provision of services, access to markets and freedom of establishment. The members of the Mercosur meet annually to negotiate the implementation of the 1997 framework agreement. A protocol regarding the provision of services entered into effect in December 2005 and was ratified by Argentina, Brazil and Uruguay. It contemplates the complete elimination of intra–Mercosur restrictions by 2015. The liberalization is effected gradually on the basis of negotiation rounds intended to result in eliminating restrictions by segments with a view to reaching complete liberalization. See “República Oriental del Uruguay—Foreign Policy and Membership in International and Regional Organizations.”

 

D-13


1999-2002: Recession and Crisis in the Banking System

Between 1999 and 2002, a series of external factors, including most significantly the economic crisis that affected Argentina severely in 2001 and 2002, had material adverse consequences for Uruguay’s economy.

During 1999, Uruguay’s economy was adversely affected by the devaluation of the Brazilian currency, a strong recession in Argentina, which caused a contraction in Argentine demand for Uruguay’s products and tourism-related services, declining international prices for several of Uruguay’s commodity exports, an increase in the price of oil and derivative products, the appreciation of the U.S. dollar (to which the Uruguayan peso was linked), which caused Uruguay’s export products to become less competitive in several of its traditional export markets and increases in international interest rates.

As a result of these circumstances, in 1999 real GDP decreased by 2.8%, domestic private consumption declined 1.5% and private gross fixed investment fell by 14.0%. Exports of Uruguayan goods and services also declined by 7.4%. The recession affected most sectors of the economy. The consolidated public sector deficit increased from 0.9% of GDP in 1998 to 3.6% of GDP in 1999, reflecting a decrease in public sector revenues and increases in public sector spending, attributable to a number of infrastructure projects undertaken by the government to mitigate the impact of the recession.

During 2000, most of the adverse conditions that caused real GDP to contract in 1999 continued, including high oil prices, a strong U.S. dollar, Argentina’s recession and increases in international interest rates. Heavy rains in the last quarter of 1999 also adversely affected the agricultural sector. As a result, in 2000 real GDP declined by 1.4% and the consolidated public sector deficit reached 3.8% of GDP, as public sector revenues contracted at a faster pace than public sector primary expenditures.

Adverse external factors continued through 2001. Argentina’s third year of recession and the slowdown in the rate of economic growth of industrialized nations adversely affected Uruguay’s economy. As a consequence, real GDP contracted by 3.4% in 2001 driven by a 2.0% decrease in domestic private consumption, a 2.9% decrease in government consumption and a 8.8% decrease in private fixed investment. The consolidated public sector deficit for 2001 reached 3.9% of GDP. Domestic inflation for 2001, as measured by the CPI, stood at 3.6% and the peso depreciated 13.0% in real terms with respect to the U.S. dollar. Foreign trade also deteriorated in 2001, with exports contracting by 10.5% (measured in U.S. dollars) and 7.7% in real terms, and imports contracting by 11.7% (measured in U.S. dollars) and 8.8% in real terms, with respect to 2000. Nevertheless, the continued recession appeared not to undermine confidence in Uruguay’s banking system, which continued to attract deposits from residents and non-residents, particularly as volatility in Argentine increased. As of December 31, 2001, approximately 87.3% of total credit extended to the private sector and 91.3% of total deposits held in the private banking system were denominated in foreign currencies (principally the U.S. dollar).

On December 1, 2001, the Argentine government froze deposits held with Argentine banks and introduced exchange controls restricting capital outflows. On December 23, 2001, the Argentine government announced its decision to default on Argentina’s foreign debt. Argentina suffered significant economic, political and social deterioration during 2002. In addition to the government, a significant portion of the country’s large corporate debtors defaulted on all or a substantial part of their financial liabilities. In response to the crisis, the Argentine government undertook a number of far-reaching initiatives, including a mandatory conversion of foreign currency-denominated debts and bank deposits into Argentine pesos and the devaluation of the Argentine peso after ten years of parity with the U.S. dollar.

 

D-14


In 2002, Uruguay’s economy experienced its most significant setback since 1982, with real GDP contracting by 11.0%. The proximate causes of Uruguay’s 2002 economic crisis are associated with Argentina’s economic deterioration during that time. Uruguay’s fiscal imbalances, its dependence on Argentina and Brazil as its principal trading partners and sources of foreign revenues, and rigidities that limited the ability of the economy to absorb and adapt to external factors, added to the severity of the crisis.

Uruguay’s banking system confronted its worst crisis since the 1982-83 crisis. At December 31, 2002, total U.S. dollar deposits of the non-financial private sector with the banking system (excluding off-shore institutions) were US$7.3 billion (of which US$2.4 billion were of non-residents), compared to US$14.2 billion as of December 31, 2001 (of which US$6.6 billion were of non-residents). In the second quarter of 2002, a deposit outflow affected Uruguay’s financial system leading first to the suspension of Banco Galicia de Uruguay, or BGU, and Banco Comercial, Uruguay’s two largest private banks (both affiliated with Argentine banks) and soon thereafter to the closure of Banco Montevideo/La Caja Obrera, Uruguay’s third largest private bank in June 2002. Although the government received approximately US$500.0 million from the IMF on June 29, 2002, and provided liquidity assistance to the local banks, confidence in the Uruguayan financial system continued to erode.

The Uruguayan authorities sought the financial assistance of the IMF, the World Bank and the IADB to safeguard Uruguay’s payment and financial system. On August 4, 2002, Congress passed Law 17,523, known as the Law for the Strengthening of the Financial System. The law (i) provided for the establishment of a fund for the stability of the Uruguayan banking system, the Fondo de Estabilidad del Sistema Bancario, or FESB, (ii) extended to three years the maturities of all U.S. dollar-denominated time deposits held with Banco de la República and Banco Hipotecario, (iii) transferred foreign currency-denominated liabilities of Banco Hipotecario to Banco de la República, and (iv) facilitated the liquidation of insolvent banks.

In furtherance of the economic program agreed with the IMF, in December 2002, Congress enacted amendments to the banking law aimed at strengthening the banking system. Following the enactment of these amendments, the government completed the reorganization of Banco Comercial, Banco Montevideo and La Caja Obrera into a new commercial bank, Nuevo Banco Comercial. The non-recoverable assets of the three liquidated banks are held by liquidation funds, and the proceeds have been earmarked to satisfy deposits of the liquidated banks that were not assumed by Nuevo Banco Comercial.

Between January 1, 2002 and February 28, 2003, depositors withdrew approximately US$6.8 billion from the Uruguayan banking system. Banks responded to depositors’ demands by withdrawing approximately US$1.1 billion in reserves and voluntary deposits held with Banco Central and reducing to practically none the availability of credit. The financial system received assistance for approximately US$2.0 billion from the Uruguayan authorities.

In 2002, the government adopted a series of initiatives intended to reduce the deficit of the public sector. It relied on access to funding by the IMF and other multilateral agencies to shore up Banco Central’s international reserve assets with the expectation that confidence in the banking system would thereby be restored.

 

D-15


The 2002 economic crisis had profound effects on Uruguay’s monetary and exchange rate policy. The continued devaluation of the Argentine peso and growing uncertainties as to the future of the Brazilian economy increased the risk of a speculative run on the peso. On June 19, 2002, Banco Central allowed the peso to float, abandoning the “crawling peg” system. The devaluation of the peso accelerated in July 2002, dropping to its lowest value of Ps. 32.33 per US$1.00 on September 10, 2002. The depreciation of the peso resulted in Uruguay’s foreign currency-denominated debt to GDP ratio rising to 89.1% as of December 31, 2002, while the foreign currency-denominated debt service to exports ratio for 2002 was 33.6%.

The decrease in tax collections attributable to the contraction of GDP, together with the increase in debt service requirements (measured as a percentage of GDP) caused primarily by the devaluation (nearly all of Uruguay’s debt is denominated in foreign currency), practically neutralized the savings achieved by the central government during 2002. As a result, the consolidated public sector deficit for 2002 was approximately 4.1% of GDP. Nevertheless, by reducing expenditures (excluding interest payments), Uruguay’s public sector generated a primary surplus equal to 0.5% of GDP.

2003-2012: Recovery and Economic Growth

Uruguay’s economy stabilized during the second quarter of 2003 and began to recover, recording an annual real GDP growth of 0.8% and 5.0% in 2003 and 2004, respectively. This improvement was mainly a result of an increase in external demand driven primarily by Argentina’s economic recovery, an increase in the prices of commodities exported by Uruguay, the opening of the U.S. market to Uruguayan beef exports and a recovery in domestic demand spurred by improved consumer and investor confidence. GDP grew at a rate of 7.5% in 2005, and continued to grow at rates of 4.1% in 2006, 6.5% in 2007, 7.2% in 2008, 2.2% in 2009, 8.9% in 2010, 6.5% in 2011 and 3.9% in 2012.

In 2008, domestic private consumption increased by 9.1% in real terms compared to 2007 and represented 69.4% of GDP. In 2009, domestic private consumption decreased by 1.6% compared to 2008 and represented 65.9% of GDP. In 2010, domestic private consumption grew by 13.7% compared to 2009 and represented 67.6% of GDP. In 2011, domestic private consumption grew by 8.9% compared to 2010 and represented 74.6% of GDP. In 2012, domestic private consumption grew by 6.5% compared to 2011 and represented 68.7% of GDP.

In 2008, gross fixed investment increased by 19.3% compared to 2007, representing 20.6% of GDP, with private gross fixed investment increasing by 18.7%. In 2009, gross fixed investment decreased by 5.7% compared to 2008, representing 19.6% of GDP, with private gross fixed investment decreasing by 10.1%. In 2010, gross fixed investment increased by 13.3% compared to 2009, representing 19.3% of GDP, with private gross fixed investment increasing by 20.1%. In 2011, gross fixed investment increased by 5.5% compared to 2010, representing 19.0% of GDP, with private gross fixed investment increasing by 10.3%. In 2012, gross fixed investment increased by 19.4% compared to 2011, representing 22.5% of GDP, with private gross fixed investment increasing by 22.5%.

Gross domestic savings represented 15.9% of GDP in 2008, 17.6% of GDP in 2009, 15.9% of GDP in 2010, 15.7% of GDP in 2011 and 15.0% of GDP in 2012.

 

D-16


Exports of goods and services grew by 8.5% in 2008, 4.2% in 2009, 7.8% in 2010, 6.3% in 2011 and 1.6% in 2012. Imports of goods and services grew by 24.4% in 2008, decreased by 9.3% in 2009 and increased again by 14.8% in 2010, 13.4% in 2011 and 13.6% in 2012.

Deposits held by the non-financial private sector with the banking system (excluding deposits held with off-shore banks and financial houses), stood at US$12.8 billion at December 31, 2008, US$15.3 billion at December 31, 2009, US$17.9 billion at December 31, 2010, US$20.6 billion at December 31, 2011 and US$23.2 billion at December 31, 2012. Approximately 73.9% of those deposits were denominated in foreign currencies (primarily U.S. dollars) as of December 2012.

The annual rate of consumer price inflation reached 9.2% in 2008. However, in 2009, the annual rate of inflation decreased to 5.9%. In 2010, 2011 and 2012, the annual rate of consumer price inflation increased to 6.9%, 8.6% and 7.5%, respectively. The rate of inflation for the twelve month period ended June 30, 2013 was 8.2% as measured by the consumer price index. For a discussion of Uruguay’s current monetary policy see “Monetary Policy and Inflation—Monetary Policy.”

The Economic Policies of the Mujica Administration

The Mujica administration has prioritized macroeconomic stability and adjusted existing policies to the extent needed to pursue its main objectives, which include:

 

   

maintaining a prudent fiscal stance, which it recognizes as a condition to long term fiscal sustainability;

 

   

preserving the value of the currency and introducing inflation targeting as its principal monetary policy; and

 

   

strengthening commercial and political relationships with the Mercosur member countries while continuing to promote opportunities for Uruguayan exports and foreign direct investment in Uruguay in the context of bilateral arrangements that are consistent with the Mercosur agreements.

On December 27, 2010, President Mujica signed into law the five-year budget for the period 2010-2014. The budget reflects the government’s priorities of achieving long-term growth and debt-sustainability balanced with increases in infrastructure and social spending. See “Public Sector Debt—External Debt.”

The Mujica administration continues to implement the “Plan de Equidad” (Fairness Plan) established by the Vázquez administration in 2007 to mitigate social and economic marginalization. The Fairness Plan involves a long-term effort to provide for care and development of children and teenagers. By supporting families in the lowest 20% of income distribution, the Plan seeks greater integration of this target population into the formal educational system as a means of combating poverty. It also provides support for impoverished elderly citizens, and seeks to improve medical support for the poor and to assist impoverished unemployed workers.

 

D-17


Privatizations

While privatizations have not been a major focus of Uruguay’s economic policy, the government has divested or privatized certain state-owned enterprises, such as the gas company servicing Montevideo in 1993, and has taken measures to transfer certain activities, such as sewage, garbage collection, road maintenance and the administration of certain ports and airports, to the private sector through concessions and other similar arrangements. Legislation has also been enacted enabling the government to open various components of the telecommunications and energy and gas sectors to private investment. Proceeds from privatizations have been immaterial to date.

The government is committed to improving the competitiveness of the Uruguayan economy and encouraging private investment by continuing to open a number of areas of the economy previously reserved to public sector enterprises to private investment. Through the Administración Nacional de Telecomunicaciones, or ANTEL, the local telecommunications company, several revenue sharing arrangements with private companies for the installation and operation of certain new telecommunication facilities have been implemented. In February 2001, Congress approved the licensing of cellular phone services and data transmission to private sector providers and opening the telecommunications sector (other than local fixed line services but including long distance) to private sector providers. In December 2002 and May 2004, licenses were granted to foreign telecommunications companies, to provide mobile telephone services. The government has also approved the provision of long distance international telephone services by 17 companies in competition with ANTEL.

The government also granted the Corporación Nacional Para el Desarrollo, or CND, a state-owned investment corporation, overall responsibility for the administration of a program of public works to be undertaken between 2003 and 2018. CND currently owns the concessions as well as 100% of the shares of Corporación Vial del Uruguay S.A, or CVU, a special-purpose company responsible for the projects. CVU and private companies have to date signed 50 contracts worth US$109 million for the construction of bridges and highways.

In 2001, the government issued a decree approving the provision of postal services by private sector entities in competition with the state-owned postal service. There are numerous companies currently operating in the Uruguayan postal service market.

In September 2003, the government granted a 30-year concession to Puerta del Sur S.A. for the management and administration of the Montevideo airport.

In July 2007, the government sold 75% of the equity of Pluna Airlines to Leadgate Investment Corporation (45%) and to Sociedad Aeronáutica Oriental S.A. (30%), and retained a 25% stake in the airline. The new company was called Pluna Líneas Aéreas S.A. In 2011, Pluna incurred severe losses, and its liquidity and financial condition deteriorated severely. On June 15, 2012, Leadgate –the controlling shareholder- transferred all of its shares in Pluna to a trust under the surveillance of the Uruguayan government. In July 2012, Pluna suspended all flights and initiated a judicial reorganization procedure. Thereafter, Congress passed Law No. 18,931 to reorganize the operations of the airline, including by disposing Pluna’s assets. In October 2012, through a trust created pursuant to Law No. 18,931, the government conducted an auction for the sale of seven of Pluna’s aircrafts. The auction was initially awarded to Cosmo S.A., a company organized under the laws of Spain; however, the transaction was not completed. The government is currently assessing all available options to dispose or exploit the aircraft and the remaining assets of Pluna.

 

D-18


At this time the government has no plans to privatize any public sector enterprises.

For a description of government participation in Uruguayan economy see “Gross Domestic Product and Structure of the Economy—Role of the State in the Economy.”

Environment

The principal environmental concerns in Uruguay consist of industrial and urban pollution of water and soil. The Uruguayan Constitution provides for the right to a clean environment and Congress has enacted enabling legislation for the protection of the environment, including legislation which created the Ministry of Housing, Zoning and the Environment (Ministerio de Vivienda, Ordenamiento Territorial y Medio Ambiente) in 1990. Under a 1994 environmental law, potentially hazardous projects must be approved by the Ministry of Housing, Zoning and the Environment prior to their implementation. In addition to the Ministry of Housing, Zoning and the Environment, environmental supervision and regulation is carried out through many of the departments of the central government and state and municipal governments. In March 2000, Congress enacted a law creating a National System of Protected Natural Areas and granting the Executive Power the authority to incorporate, by decree, areas into this system and limit or prohibit certain activities within and around these protected areas.

Uruguay has received financing from the IADB for purposes of improving municipal infrastructure services for garbage collection and sewage treatment. The government presently requires environmental studies to be presented in connection with any proposals for construction and other projects. In addition, all projects financed by the IADB currently require environmental impact studies. Beginning in the late 1980’s, Uruguay also received a series of loans from the IADB to undertake cleaning up Montevideo’s coast, including the shoreline along the Río de la Plata.

In May 2006, Argentina brought a claim to the International Court of Justice (“ICJ”) against Uruguay under the Treaty of the Uruguay River, alleging that by authorizing the construction of certain pulp mills in the Fray Bentos region, along the shores of the Uruguay river, Uruguay failed to honor its obligations under the treaty.

On April 20 2010, the ICJ issued its final ruling on this dispute. Although the ICJ ruled that Uruguay breached certain procedural obligations under the Treaty of the Uruguay River, it did not find that any of the environmental damages claimed by Argentina had been proved and did not impose any remedial sanction on Uruguay. Argentine demonstrators dissatisfied with the ICJ ruling repeatedly obstructed traffic across international bridges in protest. In June 2010, the demonstrators agreed to cease the obstruction to facilitate ongoing negotiations seeking to resolve the situation. On August 30, 2010, Uruguay and Argentina signed an agreement providing for the creation of a technical committee within the Administrative Commission of the Uruguay River. This committee was created to monitor the Uruguay River and the industrial and agricultural businesses and cities on both margins of the Uruguay River that discharge effluents into the river.

 

D-19


GROSS DOMESTIC PRODUCT AND STRUCTURE OF THE ECONOMY

The following tables set forth information regarding GDP and expenditures for the periods indicated. The figures included in the table entitled “Gross Domestic Product by Expenditure” are based on current (nominal) prices for each year, whereas the percentage figures included in the table entitled “Change in Gross Domestic Product by Expenditure” are based on 2005 prices (in accordance with the Integral Revision of the National Accounts published by Banco Central in March 2009) to eliminate distortions introduced by changes in relative prices.

GDP and Expenditures

(thousands of 2005 pesos, except as otherwise indicated)

 

     2008(1)     2009(1)     2010(1)     2011(1)     2012(1)  

GDP

   P s. 505,207      P s. 516,552      P s. 562,768      P s. 599,521      P s. 623,114   

Imports of goods and services

     184,507        167,398        192,257        218,087        247,813   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total supply of goods and services

     689,714        683,950        755,025        817,608        870,927   

Exports of goods and services

     155,204        161,757        174,401        185,392        188,420   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total goods and services available for domestic expenditures

   P s. 534,510      P s. 522,193      P s. 580,624      P s. 632,215      P s. 682,507   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allocation of total goods and services:

          

Consumption (public and private)

     421,305        417,494        467,475        506,189        538,639   

Gross investment (public and private)

     113,205        104,699        113,149        126,026        143,868   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total domestic expenditures

   P s. 534,510      P s. 522,193      P s. 580,624      P s. 632,215      P s. 682,507   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GDP growth (%)(2)

     7.2     2.2     8.9     6.5     3.9

 

(1) 

Preliminary data.

(2) 

% change from previous year, 2005 prices.

Source: Banco Central.

Gross Domestic Product by Expenditure

(% of total nominal GDP, unless otherwise indicated)

 

     2008(1)     2009(1)     2010(1)     2011(1)     2012(1)  

Government consumption

     12.2     13.5     13.0     13.2     13.6

Private consumption

     69.4        65.9        67.6        67.9        68.7   

Gross fixed investment

     20.6        19.6        19.3        19.0        22.1   

Public sector (% of gross fixed investment)

     4.8        5.5        4.6        3.7        4.0   

Private sector (% of gross fixed investment)

     15.7        14.1        14.7        15.3        18.0   

Exports of goods and services

     30.2        28.3        27.2        27.2        26.3   

Imports of goods and services

     35.0        27.4        26.3        27.7        29.7   

Savings

     15.9        17.6        15.9        15.7        15.0   

 

(1)

Preliminary data.

Source: Banco Central.

 

D-20


Change in Gross Domestic Product by Expenditure

(% change from previous year except as otherwise indicated, 2005 prices)

 

     2008(1)     2009(1)     2010(1)     2011(1)     2012(1)  

Government consumption

     9.3     4.1     1.0     3.6     5.4

Private consumption

     9.1        (1.6     13.7        8.9        6.5   

Gross fixed investment

     19.3        (5.7     13.3        5.5        19.4   

Public sector (% of gross fixed investment)

     21.4        9.5        (6.1     (12.1     5.2   

Private sector (% of gross fixed investment)

     18.7        (10.1     20.1        10.3        22.5   

Exports of goods and services

     8.5        4.2        7.8        6.3        1.6   

Imports of goods and services

     24.4        (9.3     14.8        13.4        13.6   

 

(1)

Preliminary data.

Source: Banco Central.

Principal Sectors of the Economy

The Uruguayan economy relies heavily on services, including the commerce, restaurants and hotels sector, which involves a wide range of tourism services, the financial and insurance sector, the real estate and business services sector and the government sector. However, since 2006, high commodity export prices have supported the improved performance of the agriculture, livestock and fishing and the manufacturing sectors.

In 2012, GDP increased by 3.9% in real terms, after growing by 6.5% in 2011 and 8.9% in 2010, in each case with respect to the prior year. Services accounted for approximately 61.2% of GDP, while the manufacturing and agriculture, livestock and fishing sectors together accounted for 19.0% of GDP in 2012.

GDP growth in 2012 was driven mainly by internal demand of products and services. The most significant sectors that contributed to GDP growth were construction, transportation, storage and communications, real estate and business services and manufacturing. Construction grew by 18.7% compared to 2011, fueled by public and private sector investment, including the construction of a new paper pulp mill in the city of Colonia del Sacramento. Transportation, storage and communications grew by 7.4% mainly driven by communications, reflecting a growth in the use of mobile communication and internet services. Real estate and business services grew by 5.4% compared to 2011, mainly driven by the business services segment, as a result of a trend in the manufacturing sector to sub-contract administrative, maintenance and cleaning services. Manufacturing grew by 1.6% compared to 2011, driven by growth in the food stuffs and oil and refined products segments. During 2012, the agriculture, livestock and fishing sector contracted by 1.6% in real terms, primarily due to the decrease in agriculture production as a result of the combined effect of lower prices and lower demand, in particular external demand, which was partially offset by the growth in cattle and milk production.

 

D-21


The following tables set forth the components of Uruguay’s GDP and their respective growth rates for the periods indicated. The discussion of the various sectors follows the order in which the sectors are presented in the tables. The percentages and figures included in the table entitled “Gross Domestic Product by Sector” are based on current (nominal) prices for each period, whereas the percentage figures included in the table entitled “Change in Gross Domestic Product by Sector” are based on 2005 prices to eliminate distortions introduced by changes in relative prices.

Gross Domestic Product by Sector

(in millions of US$ and % of GDP, nominal prices)

 

    2008(1)     2009(1)     2010(1)     2011(1)     2012(1)  

Agriculture, livestock and fishing

  US$ 2,786        9.2   US$ 2,095        6.9   US$ 2,526        6.5   US$ 3,628        7.8   US$ 3,451        6.9

Mining

    90        0.3        123        0.4        150        0.4        157        0.3        199        0.4   

Manufacturing

    4,542        14.9        4,188        13.8        4,811        12.4        5,348        11.5        6,027        12.1   

Electricity, gas and water

    228        0.8        436        1.4        1,267        3.3        924        2.0        287        0.6   

Construction

    2,058        6.8        2,120        7.0        2,733        7.0        3,350        7.2        4,450        8.9   

Commerce, restaurants and hotels

    4,381        14.4        4,347        14.4        5,678        14.6        7,026        15.1        7,400        14.8   

Transportation, storage and communications

    2,287        7.5        2,213        7.3        2,782        7.2        3,227        6.9        3,336        6.7   

Real estate and business services

    4,227        13.9        4,500        14.9        5,853        15.1        7,079        15.2        7,938        15.9   

Financial and insurance services

    1,321        4.3        1,344        4.4        1,714        4.4        2,063        4.4        2,332        4.7   

Services of the government

    2,606        8.6        2,949        9.7        3,641        9.4        4,379        9.4        4,796        9.6   

Other community, social and personal services

    2,693        8.9        2,871        9.5        3,658        9.4        4,386        9.4        4,758        9.5   

Net adjustments for payments made by financial institutions and import tariffs

    3,167        10.4        3,066        10.1        4,048        10.4        4,893        10.5        4,956        9.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GDP (in millions of US$ at nominal prices)(2)

  US$ 30,387        100.0   US$ 30,251        100.0   US$ 38,863        100.0   US$ 46,460        100.0   US$ 49,928        100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GDP per capita

  US$ 9,114        US$ 9,044        US$ 11,578        US$ 13,792        US$ 14,769     

 

(1)

Preliminary data.

(2)

Figures are not adjusted by purchasing power.

Source: Banco Central.

Change in Gross Domestic Product by Sector

(% change from previous year, 2005 prices)

 

     2008(1)     2009(1)     2010(1)     2011(1)     2012(1)  

Agriculture, livestock and fishing

     2.1     4.0     (3.6 )%      12.4     (1.6 )% 

Mining

     1.7        68.3        (0.3     (9.4     15.5   

Manufacturing

     8.1        (3.8     3.3        2.8        1.6   

Electricity, gas and water

     (51.1     12.8        88.0        (23.3     (21.9

Construction

     2.6        (1.2     4.3        2.7        18.7   

Commerce, restaurants and hotels

     11.9        (2.0     16.2        10.2        3.4   

Transportation, storage and communications

     30.7        12.6        18.8        13.6        7.4   

Real estate, business, financial and insurance services

     4.5        1.6        4.5        8.0        5.4   

Other services(2)

     4.6        4.4        1.9        3.4        3.3   

Total GDP

     7.2     2.2     8.9     6.5     3.9

 

(1)

Preliminary data.

(2)

Includes public sector services and other services.

Source: Banco Central.

Agriculture, Livestock and Fishing

Uruguay’s territory consists primarily of vast plains, which, combined with its temperate climate, make the country well suited for agriculture and livestock. This sector grew between 2008 and 2011 driven by cereal and oil production fueled by high international commodity prices, as well as by milk production. In 2012, the sector contracted by 1.6% mainly due to the decrease in agriculture production as a result of the combined effect of lower prices and lower demand, in particular external demand. This decrease was partially offset by a 3.3% growth in cattle production and a 3.9% growth in milk production.

 

D-22


Cereal and oil production grew 24.1% (2008) and 19.4% (2009) primarily as a result of increased soybean production during these years and record production of wheat in the years 2008 and 2009. In 2010, cereal and oil production contracted by 3.6%, mainly as a result of the decrease in wheat production. However, in 2011, cereal and oil production increased by 31.3% driven again by a recovery in wheat production. In 2012, cereal and oil production contracted again by 11.3%, mainly as a result of the decrease in wheat production.

Although the existing cattle stock satisfied the increasing external demand from 2008 through 2012, milk and cattle production were affected by adverse climate conditions and a contraction of international markets in the first half of 2009. Growth in milk production recovered in 2010 with a 4.3% increase. Growth in milk production continued in 2011 and 2012, increasing by 17.0% and 3.9%, respectively, in each case with respect to the prior year. Livestock (except milk) production contracted 1.7% (2008) and 1.0% (2009) primarily as a result of adverse climate conditions and a contraction of international markets. However, during 2010 livestock (except milk) production increased by 0.3%, driven by the improvement in climate conditions and international demand. In 2011, livestock (except milk) production contracted again by 0.4% as compared to the prior year, primarily due to the effects of droughts. In 2012, livestock (except milk) production recovered again, increasing by 3.4%.

The following table sets forth the production of selected primary goods for the periods indicated.

Selected Primary Goods Production

(in millions of US$, except as otherwise indicated)

 

     2008(1)      2009(1)      2010(1)      2011(1)      2012(1)  

Cereals and oil products

   US$ 2,013       US$ 1,663       US$ 1,756       US$ 2,801       US$ 2,494   

Rice

     392         275         363         378         346   

Wheat

     542         464         401         819         371   

Soybean

     633         631         785         1,226         1,434   

Pastures

     395         267         266         333         334   

Vegetables and fruits

     430         436         467         525         495   

Milk

     533         323         486         739         703   

Livestock except milk

     1,692         1,385         1,838         2,320         2,386   

Cattle

     1,352         1,052         1,425         1,878         1,878   

Wool

     73         60         67         99         90   

Forestry

     318         275         387         339         294   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total agricultural production

   US$ 4,985       US$ 4,083       US$ 4,935       US$ 6,724       US$ 6,373   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cattle (in thousands of heads slaughtered)

     2,276         2,326         2,248         2,011         2,123   

Milk (in millions of liters)

     1,531         1,473         1,552         1,844         1,940   

Wool (in tons)

     36,246         35,623         30,100         30,700         32,402   

 

(1)

Preliminary data.

Source: Banco Central.

 

D-23


The following tables set forth percentage changes from prior years for agricultural and livestock production for the periods indicated, based on 2005 prices to eliminate distortions introduced by changes in relative prices.

Agricultural and Livestock Production

(% change from previous year, 2005 prices)

 

     2008(1)     2009(1)     2010(1)     2011(1)     2012(1)  

Cereals and oil products

     24.1     19.4     (3.6 )%      31.3     (11.3 )% 

Rice

     2.0        (9.3     24.6        0.2        (7.0

Wheat

     90.8        41.4        (16.6     70.7        (53.6

Soybean

     29.1        43.8        16.6        19.3        17.0   

Pastures

     52.4        0.6        (4.4     7.8        (2.2

Vegetables and fruits

     (8.3     (1.9     7.2        1.1        (0.6

Milk

     19.3        (3.1     4.3        17.0        3.9   

Livestock except milk

     (1.7     (1.0     0.3        (0.4     3.4   

Cattle

     (5.6     (1.0     0.6        (0.8     2.6   

Wool

     (11.5     (3.8     (15.5     2.6        4.7   

Forestry

     11.8        0.2        8.1        (2.8     1.2   

Total agricultural production

     8.3     5.9     0.2     13.2     (3.4 )% 

 

(1)

Preliminary data.

Source: Banco Central.

Mining

The mining sector mainly consists of stone and sand quarries. These products are used primarily in construction. Other contributors to the mining sector include smaller operations for the mining of gold and semi-precious stones, such as agate and amethyst. Mining has remained relatively constant as a percentage of GDP from 2008 through 2012 at approximately 0.4%. Uruguay has no known oil or natural gas reserves, although exploratory work has been undertaken in the coastal region. Several projects have been developed in Uruguay over the past years for the mining of nickel, copper and diamonds, without any findings. At present, a project for the mining of iron ore is being developed.

In October 2012, the government submitted a bill to Congress proposing the enactment of a law regulating mining projects involving areas of at least 400 hectares. The bill, if enacted, will set the conditions under which large mining exploitation concessions will be granted. The bill estimates that a mining area project would require an initial investment of approximately UI 830 million and would generate annual revenues exceeding UI 830 million. It also provides for the creation of an extraordinary income tax on the net income generated by mining activities that fall within the scope of the law.

Manufacturing

Manufacturing is an important sector of Uruguay’s economy, accounting for 12.1% of GDP in 2012. In 2008, the manufacturing sector grew by 8.1% in real terms compared to 2007. Growth was fueled by pulp and paper activities, resulting from a pulp mill coming on line in mid-November 2007, foodstuffs and oil and refined products. In 2009, however, as a result of the impact of the international economic crisis on trade, the manufacturing sector contracted by 3.8% in real terms. In 2010, manufacturing grew by 3.3%, compared to 2009, mainly due to increased production of pulp, paper and chemicals. In 2011, manufacturing grew in real terms by 2.8% driven by foodstuffs and chemicals production, which increased by 3.0% and 11.0%, respectively, offsetting decreases in oil and refined products, and textiles. In 2012, manufacturing grew by 1.6% in real terms compared to 2011, driven by an increase in foodstuffs and oil and refined products.

 

D-24


The following tables set forth information regarding goods production for the periods indicated.

Selected Manufacturing Goods Production

(in millions of US$)

 

     2008(1)      2009(1)      2010(1)      2011(1)      2012(1)  

Foodstuffs:

              

Processed meats

   US$ 2,357       US$ 1,992       US$ 2,392       US$ 2,829       US$ 2,882   

Dairy products

     1,025         779         1,014         1,393         1,410   

Wheat and rice mills

     793         682         663         791         756   

Baked goods

     647         653         809         913         1,003   

Other foodstuffs

     1,210         1,180         1,280         1,492         1,447   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total foodstuffs

     6,031         5,287         6,158         7,418         7,499   

Beverages

     603         591         666         797         855   

Tobacco

     77         85         69         80         79   

Textiles

     781         540         571         631         570   

Leather goods

     307         203         235         376         366   

Chemicals

     1,662         1,455         1,830         2,276         2,402   

Oil and refined products

     1,740         1,272         1,472         1,407         1,684   

Machinery

     938         810         883         1,002         1,094   

Other industries

     3,032         2,386         3,286         3,522         3,412   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   US$ 15,170       US$ 12,629       US$ 15,169       US$ 17,509       US$ 17,959   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Preliminary data.

Source: Estimates based on data of Banco Central and the National Statistics Institute.

Manufacturing Production

(% change from previous year, 2005 prices)

 

     2008(1)     2009(1)     2010(1)     2011(1)     2012(1)  

Foodstuffs:

          

Processed meats

     1.4     3.1     (4.6 )%      (4.4 )%      7.7

Dairy products

     11.0        1.4        1.7        20.3        7.6   

Wheat and rice mills

     4.7        10.0        (9.1     13.3        (6.3

Baked goods

     5.0        1.9        2.6        (0.7     5.5   

Total foodstuffs

     5.2        2.3        (2.5     3.0        3.1   

Beverages

     6.1        1.6        1.9        1.2        4.3   

Tobacco

     (6.0     (3.2     5.6        1.4        (8.1

Textiles

     (4.3     (24.2     (5.8     (5.9     (13.1

Leather goods

     (19.7     (22.5     5.8        29.8        1.1   

Chemicals

     4.4        (2.2     13.8        11.0        1.6   

Oil and refined products

     30.5        (4.6     (2.1     (22.0     12.8   

Machinery

     5.6        (7.9     (0.8     2.4        9.4   

Total

     11.5     (3.8 )%      2.6     1.6     1.5

 

(1)

Preliminary data.

Source: Banco Central.

 

D-25


Electricity, Gas and Water

Energy consumption in Uruguay consists of oil and gas, electricity and wood. Electricity is produced primarily from hydroelectric sources and is provided by Usinas y Transmisiones Eléctricas or UTE, a state-owned entity. Electricity can be imported freely and Uruguay imports electricity from Argentina and Brazil. In March 2009, Uruguay and Brazil agreed to build an electrical transmission line between San Carlos (Uruguay) and Candiota (Brazil), with an intermediate frequency converter in Cerro Largo (Uruguay), with financing expected to be provided by the Structural Funds of the Mercosur and the Banco Nacional de Desenvolvimiento Economico e Social of Brazil or another Brazilian financial institution. The Uruguayan government expects this line to be operative in 2014 with a transmission capacity of 500MW. The country imports all of its oil and gas supplies from various international sources and has a state-owned oil refining company, ANCAP. Uruguay’s economy is therefore vulnerable to increases in international oil prices. With a view to reducing oil imports, ANCAP invested in biodiesel plants that became operative in 2009. To increase its fuel transportation capacity, ANCAP has also recently invested in vessels. ANCAP also awarded private sector enterprises with hydrocarbon exploration and exploitation contracts in on shore and off shore Uruguayan areas. Natural gas can be imported freely, and its distribution and transportation have been opened to private investment. The government is implementing different actions for the production of liquid natural gas (LNG) in Uruguay to diversify the energy matrix and obtain a constant supply of natural gas. See “—Role of the State in the Economy.”

The electricity, gas and water sector’s performance has varied over the past five years, mainly as a result of the electricity sector’s performance, which in turn depends on the type of electricity generated (thermoelectric and/or hydroelectric). In 2008, the electricity, gas and water sector decreased as compared to its previous year. This was caused by an increase in thermoelectric generation, due to insufficient hydroelectric generation as a result of droughts. In 2009, the electricity, gas and water sector grew by 12.8% in real terms, driven primarily by the shift from oil-based to hydroelectric sources of generation as a consequence of the end of the drought that affected the Uruguayan basin in 2008. In 2010, the sector grew by 88.0% in real terms due to an increased use of hydroelectric source of electricity generation. In each of 2011 and 2012, droughts affected the Uruguayan basin again and the electricity, gas and water sector contracted in real terms by 23.3% and 21.9%, respectively.

Construction

The construction sector grew at an annual rate of 2.6% in 2008, contracted by 1.2% in 2009, and continued to grow by 4.3% and 2.7% in real terms, in 2010 and 2011, respectively, fueled by public and private sector investment. In 2012, the construction sector grew by 18.7%, mainly due to investment in the construction of a new paper pulp mill in the city of Colonia del Sacramento.

Commerce, Restaurants and Hotels

In 2008, the commerce, restaurants and hotels sector grew by 11.9% in real terms, driven primarily by an increase in wholesale and retail trade services (mainly imported goods) and an expansion of the restaurants and hotels activities. In 2009, this sector contracted by 2.0% due to the decrease in tourist demand, reflecting the impact of the international crisis on tourism generally. In 2010, the sector grew by 16.2% in real terms, driven primarily by higher sales of motor vehicles and imported goods, and by an increase in the number of tourists and in expenditures by tourists. In 2011, this sector grew by 10.2% in real terms mainly due to the increase in consumption of fuel and imported products and growth in tourism activities. In 2012, the sector grew by 3.4% in real terms, driven primarily by an increase in wholesale and retail trade services (mainly imported goods). The commerce, restaurants and hotels sector accounted for approximately 14.3% of GDP in 2012.

 

D-26


Transportation, Storage and Communications

In 2008 and 2009, the transportation, storage and communications sector grew at rates of 30.7% and 12.6% in real terms, respectively, primarily due to the increase in the demand for mobile phone services. In 2010 and 2011, the sector grew by 18.8% and 13.6% in real terms, respectively, mainly due to an increase in communications (as a consequence of the continued investment in mobile technologies) and transportation activities (primarily supporting and auxiliary transport activities). In 2012, the growth of 7.4% is attributable mainly to the communications segment, reflecting an increase in the use of mobile communication and internet services. This increase was partially offset by a decrease in transportation, mainly as a result of the discontinuation of Pluna’s activities. For more information see “The Economy—Privatizations.”

Real Estate, Business, Financial and Insurance Services

The real estate and business sector and the financial and insurance services sector grew by 20.9% in the 2008-2012 period. This growth was driven primarily by the financial and insurance services sector and by the business services segment, as a result of a trend in the manufacturing sector to sub-contract administrative, maintenance and cleaning services. Real estate services also grew during this period driven by tourism rentals and purchases.

Uruguay established a strong reputation as a regional financial center in the early 1980’s, primarily due to its free foreign exchange and capital markets, which were liberalized in 1974, its banking and tax reporting secrecy legislation, and its low tax rates. During periods of economic turmoil in the region, such as 1995, 1998 and 2001, Uruguay’s financial sector saw deposits from foreign sources increase as depositors sought a safer haven for their savings.

Beginning in 2002, Uruguay’s financial sector was significantly affected by Argentina’s crisis. Large withdrawals of deposits during 2002 significantly exceeded the liquidity of four private banks (including the two largest private banks which were branches of Argentine based banks), which ceased to operate and entered a liquidation stage. Through multilateral financial support from the IMF, the World Bank and the IADB, the government was able to provide the necessary liquidity to government-owned banks and to the three largest private banks to honor sight deposits existing as of July 30, 2002, thereby mitigating to some extent the impact of the crisis of the banking sector on the economy as a whole.

 

D-27


The financial and insurance services sector’s contribution to GDP has grown at a slower pace since 2002 compared to other sectors of the economy. However, since 2008, the financial and insurance services sector’s contribution to GDP has been improving.

The real estate and business sector accounted for approximately 15.1% of GDP in 2012.

Role of the State in the Economy

The government continues to participate in the economy through state ownership of certain companies. The government, however, has emphasized its willingness to prepare state-owned companies for competition, as it takes measures to reduce further barriers to trade and to deregulate markets. It has also stated its intention to draw clearer distinctions between the role of the state as a regulator and as a shareholder or owner of commercial enterprises. In that respect, a number of regulatory entities were created to monitor the telecommunications, water, electricity, railway freight, oil and sanitation sectors. Since 1999, legislation has been passed to allow the private sector to participate in the provision of telephone (other than fixed line) and railroad services, in the administration of maritime ports, in the importation and distribution of natural gas and in certain other areas of the economy previously restricted to the public sector. In addition, in 2011, the government enacted Law No. 18,786, creating and regulating public-private participation contracts for infrastructure and related services. This law establishes a new type of arrangement designed to allow private investors and the government to invest in different areas of the economy, primarily the energy and infrastructure sectors, requiring significant investments.

At present, the government owns:

 

1. the local telecommunications company (ANTEL);

 

2. the electric power utility (UTE);

 

3. the oil refinery company (ANCAP);

 

4. the water and sewage authority, Obras Sanitarias del Estado (OSE);

 

5. Administración Nacional de Puertos (ANP), which operates most of Uruguay’s ports;

 

6. Administración de Ferrocarriles del Estado (AFE), which operates railway freight services;

 

7. Banco de la República and Banco Hipotecario (state-owned financial institutions);

 

8. Banco de Seguros del Estado (an insurance company); and

 

9. Administración Nacional de Correos, a postal services company that competes with several private sector companies.

ANTEL has been the traditional provider of domestic and international long-distance telephone services in Uruguay. The company also provides basic telephone service in localities outside major urban areas, and has developed rural telephone services.

 

D-28


UTE provides electric power and services to Uruguay. With the exception of Salto Grande, a binational hydroelectric facility jointly owned by the Uruguayan and Argentine governments, UTE owns and operates all of the hydroelectric generation plants in Uruguay. It also owns and operates several thermoelectric and gas facilities and all of Uruguay’s electricity transmission assets. UTE currently provides all of the domestic electricity services in Uruguay, although under recent legislative measures and presidential decrees the private sector may engage in generation activities and industrial consumers should soon be able to purchase energy directly from foreign sources taking advantage of interconnection arrangements with Brazil and Argentina. To complement traditional energy sources, UTE is implementing actions to develop wind power. These actions include launching bidding processes for the construction, operation and maintenance of wind farms. As of June 30, 2013 UTE had awarded projects for the development of 2,000 MW of wind power. UTE is also financing the development of wind farms with its own resources. The government’s goal is to reach 1,000 MW of wind power production by 2015, representing approximately 28% of the country’s generation matrix. For a more information about electricity production in Uruguay see “—Electricity, Gas and Water.”

ANCAP is the national oil refinery, responsible for processing the crude oil imported by Uruguay and marketing refined products. Uruguay has no known oil reserves.

In May 2008, the government enacted Decree 239/08 creating the “Uruguay Round 2009” program to be implemented by the national oil refinery ANCAP aimed at awarding private sector enterprises with hydrocarbon exploration and exploitation contracts in off-shore Uruguayan areas, totaling approximately 74,000 square meters. The areas were divided into 11 blocks, each ranging between 4,000 and 8,000 square kilometers in water depths between 50 and 1,450 meters, situated in the Punta del Este basin, the southernmost region of the Pelotas basin and the Oriental del Plata basin. On December 9, 2009, under the “Uruguay Round 2009” program, ANCAP granted hydrocarbon exploration and exploitation contracts to a consortium comprising YPF S.A. (formerly, Repsol YPF) (40%), Petroleo Brasileiro (40%) and Galp Energía (20%) to explore blocks 3 and 4 located in the Punta del Este basin. ANCAP has reserved the right to perform exploratory work in other blocks.

In September 2011, the government enacted Decree 259/11 creating the “Uruguay Round II” program to be implemented by ANCAP, aimed at awarding hydrocarbon exploration and exploitation contracts to private sector companies in off-shore areas. In March 2012, ANCAP received 19 offers for off-shore oil exploration and exploitation over eight of the 15 blocks offered. These eight blocks cover more than 50% of the total area offered and were awarded to the British Petroleum and British Gas (UK), Total (France) and the Tullow Oil (Ireland). On October 5, 2012, ANCAP entered into a contract with these companies, committing to invest approximately US$1.6 billion in the aggregate in exploration and development activities without recourse to ANCAP or the government for any risks and costs incurred in connection with activities associated with the project.

In October 2009, ANCAP entered into an agreement with the US company Schuepbach Energy and the Argentine company YPF S.A. to begin on-shore exploration for oil and gas in the north and center of the country. In addition, in April 2013, ANCAP authorized three international companies to commence oil and gas on-shore exploration in the north of the country. Total, Geoquim S.A. and Petrina were awarded these exploration and exploitation concessions, involving an aggregate investment of US$4.2 million.

 

D-29


In addition, ANCAP, and privately owned companies run the gas transportation and distribution business within a regulatory framework based on the granting of concessions contracts and decrees of the government. Uruguay imports all the natural gas it consumes.

To diversify the energy matrix and obtain a constant supply of natural gas, the government is implementing different actions for the production of LNG in Uruguay. In August 2012, Uruguay launched an international bidding process for the construction and operation of a LNG regasification facility in Montevideo, with a processing capacity of 10 million cubic meters of gas per day and a storage capacity of 267 million cubic meters. The regasification plant, once operational, will inject natural gas to the local distribution network for homes, industries, transportation and electrical energy generation. In May 2013, the government awarded a 20-year concession to GDF Suez S.A. (Suez) for the construction and operation of the LNG regasification plant. The LNG regasification facility is expected to be operative in 2015.

OSE is Uruguay’s largest water company, providing water and sanitation services to all of the country and sewage services outside Montevideo.

For a description of the functions and operations of Banco de la República and of Banco Hipotecario, see “The Banking Sector.”

In December 2012, the government announced the first project under the public-private participation framework involving the construction and maintenance of a prison with capacity for 1,900 persons. This project will require an estimated investment of US$80 million.

Results of Non-Financial State-Owned Enterprises

During the past ten years, non-financial state-owned enterprises have in the aggregate recorded operating profits in spite of the slowdowns experienced in the energy sector, affecting mainly ANCAP and UTE, during 2008. In 2008, UTE’s costs of operations were adversely affected by the combination of high oil prices and a severe drought, which heavily affected UTE’s results given the impossibility of fully passing the increased generation costs on to consumers. Record high crude oil prices during 2008 also impacted on ANCAP’s oil refinery costs generating an operating deficit during 2008. This situation was reversed in 2009 and both enterprises recorded a surplus.

During 2010, the government focused on the long-term management of the results of operations of the state-owned enterprises and established an energy stabilization fund to reduce the impact of droughts and mitigate the need to introduce abrupt rate adjustments affecting consumers. UTE made an initial contribution of US$150.0 million to the fund. In 2010, the current primary result of the state-owned enterprises continued to recover, particularly UTE. Due to favorable weather conditions, UTE was able to meet demand for electricity through hydro-generation, reducing to a minimum the use of its power stations. By maintaining its pricing policy, aligned to the cost structure of generation, UTE was able to restructure its assets and cancel liabilities incurred in 2009.

In 2011, ANCAP recorded losses mainly as a consequence of the partial absorption by ANCAP of the increased cost of crude oil imports (the balance being covered by the energy stabilization fund created in 2010). In addition, in a context of high oil prices, ANCAP’s refinery plant was shut down for several weeks to build a desulfuration facility, which in turn required ANCAP to import additional volumes of refined products. In 2011, UTE recorded gains, although significantly lower than in 2010, as a consequence of the increased cost of fuel power generation.

 

D-30


In 2012, due to adverse weather conditions UTE was unable to meet demand for electricity through hydro-generation. As a result, UTE relied on fuel power stations, which caused a substantial increase in electricity generation costs, adversely affecting UTE’s results of operations, although the adverse impact was less significant compared to 2011.

The following table sets forth selected financial data for the principal state-owned enterprises as of the dates and for the periods indicated.

Principal Public Sector Enterprises

(in millions of US$)(1)

 

     Total Assets      Total Liabilities      Net Profits     Percentage of
State Ownership
 

ANCAP(2)

     2,669         1,529         (15     100

ANP(2)

     864         133         26        100

AFE(1)

     210         17         (22     100

ANTEL(2)

     2,284         287         153        100

OSE(2)

     1,994         354         30        100

UTE(2)

     6,398         1,412         (176     100

 

(1) 

Preliminary data.

(2) 

Data as of and for the year ended December 31, 2012. Converted into U.S. dollars at the rate of Ps. 19.399 per US$1.00, the market rate on December 31, 2012.

Source: Financial statements of each public enterprise.

Employment, Labor and Wages

Employment

The employment rate rose from 57.7% in 2008 to 59.9% in 2012. Unemployment declined from 7.7% in 2008 to 6.1% in 2012. The continued growth of the economic activity in Uruguay explains the decrease in the nationwide unemployment rate.

 

D-31


The following table sets forth certain information regarding employment and labor in Uruguay as of the dates indicated.

Employment and Labor

(% by population)

 

     As of December 31,  
     2008     2009     2010     2011     2012  

Nationwide:

          

Participation rate(1)(2)

     62.5     63.1     62.7     64.5     63.8

Employment rate(3)

     57.7        58.5        58.4        60.7        59.9   

Unemployment rate(4)

     7.7        7.3        6.8        6.0        6.1   

Montevideo:

          

Participation rate(1)(2)

     63.8        64.8        64.9        66.8        65.9   

Employment rate(3)

     59.2        59.9        60.4        62.6        61.6   

Unemployment rate(4)

     7.3        7.6        6.9        6.2        6.5   

 

(1) 

To be considered employed, a person above the minimum age requirement (14 years old) must have worked at least one hour with remuneration or fifteen hours without remuneration during the preceding week.

(2) 

Labor force as a percentage of the total population above the minimum age requirement.

(3) 

Employment as a percentage of the total population above the minimum age requirement.

(4) 

Unemployed population as percentage of the labor force.

Sources: Instituto Nacional de Estadística (INE) and Banco Central.

The composition of employment by activities in Uruguay generally reflects the composition by activities of the GDP. Unionized labor in Uruguay is concentrated primarily in the public sector and the manufacturing, construction and financial services sectors of the economy.

The following table sets forth information regarding the percentage of the labor force by sector of the economy for the periods indicated.

Labor force(1) 

(% by sector)

 

     2008     2009     2010     2011  

Agriculture, livestock, fishing and mining

     4.9     4.9     4.9     4.2

Manufacturing, electricity, gas and water, and construction services

     22.3        21.9        22.3        22.2   

Services

     72.8        73.3        72.8        73.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Refers to population in cities over 5,000 inhabitants.

Source: Instituto Nacional de Estadística (INE).

Since Uruguay’s return to democratic rule, unions have declined in power and importance. Nonetheless, strikes and other actions by unions have occurred on occasion, normally in the form of general, one-day strikes. In cases of strikes which threaten to have a material adverse effect on private or public sector functions, the government can declare that the labor functions which are the subject of the strike provide “essential services” to the country, thereby making the strike illegal. In various instances during the past ten years, the government has threatened to disband or in fact disbanded strikes on the basis that the services provided were essential to the country. According to the “Indice de conflictividad laboral” (labor conflict index) published by Universidad Católica del Uruguay, conflicts increased during 2008 as a result of labor union demands for improvements in salaries and working conditions. In 2009, labor conflicts decreased compared to 2008. In 2010 conflicts increased as compared to 2009, in anticipation of the negotiations of the collective bargain agreements that preceded the presidential election. According to the same index, in 2011 and 2012, conflicts increased slightly with respect to previous years.

 

D-32


Wages

The following table sets forth information about wages for the periods indicated.

Average Real Wages

(annual average % change from previous year,

unless otherwise indicated)

 

     2008     2009     2010     2011     2012  

Average real wages

     3.5     7.3     3.3     4.0     4.2

Public sector

     3.6        6.0        2.8        2.6        3.4   

Private sector

     3.5        8.0        3.6        4.9        4.7   

 

Source: Instituto Nacional de Estadística (INE).

Since 2006, increases in real wages have been discussed within the context of a collective bargaining mechanism involving the principal sectors of the economy, with government participation in the negotiations. During 2008, the average increase in real wages in the public sector was 3.6% and the average wage increase for the private sector was 3.5%, while in 2009 the average increase in public sector real wages was 6.0% and 8.0% in private sector real wages. Real wages increased 3.3% on average during 2010 due to an increase of 2.8% in public sector wages and 3.6% in private sector wages. In 2011, real wages increased by 4.0% on average, with an increase in public sector real wages of 2.6% and an increase in private sector real wages of 4.9%. In 2012, real wages increased by 4.2% on average, with an increase in public sector real wages of 3.4% and an increase in private sector real wages of 4.7%. Under the collective bargaining rules, each private sector of the economy negotiates wage increases twice a year while the public sector does it once a year.

Poverty and Income Distribution

Poverty levels in Uruguay have decreased sharply in recent years due to the economic recovery. According to the most recent estimates of the National Statistics Institute, the percentage of Uruguayan urban households with an income below the minimum amount needed to purchase essential food and non-food requirements was 8.4% in 2012, compared to 16.9% in 2008.

While Uruguay has disparities in the distribution of wealth and income, which decreased in recent years, such disparities are of a lesser magnitude than those of other Latin American nations such as Brazil, Colombia or Chile. As set forth in the table below, in 2011, 30.4% of the income in urban households in Uruguay was concentrated in the hands of the top 10.0% of the economically active population as compared to 39.3% of the income in urban households for Brazil, 33.9% for Colombia, and 37.1% for Chile.

 

D-33


The following table outlines the data on income distribution for the periods indicated.

Evolution of Income Distribution of Urban Households Population of Uruguay

(% of national income)(1)

 

Income Group

   2008     2009     2010     2011  

Lowest 40%

     14.2     14.9     15.4     16.3

Next 30%

     23.6        23.9        24.2        24.8   

Next 20%

     28.4        28.2        28.4        28.5   

Highest 10%

     33.8        33.0        32.0        30.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

No information available for 2012.

Source: CEPAL.

The government has sought to address problems relating to poverty through health care accessibility and other measures. See “The Economy—The Economic Policies of the Mujica Administration.” Uruguay has a public health system that gives access to services on a sliding-scale basis, where fees are based on a citizen’s ability to pay, and guarantees medical care for workers. The government also maintains funds for the extraordinary medical expenses of the needy.

 

D-34


FOREIGN MERCHANDISE TRADE

Uruguay’s exports primarily comprise commodities (farm products and paper pulp).

In 2008, merchandise exports increased by 37.8% (measured in U.S. dollars) compared to 2007, mainly as a result of exports of paper pulp, processed meat and agricultural products. In 2009, merchandise exports decreased by 8.4% (measured in U.S. dollars) compared to 2008, as a result of a decrease in exports of manufactured products. In 2010, merchandise exports increased by 25.4% (measured in U.S. dollars) compared to 2009, as a result of the increase in exports of agricultural products, paper pulp, processed meat and dairy products. In 2011, merchandise exports increased by 15.3% (measured in U.S. dollars) compared to 2010, mainly due to an increase in exports of processed meats, dairy products and chemicals. In 2012, merchandise exports increased by 7.8% (measured in U.S. dollars) compared to 2011, mainly due to an increase in exports of agricultural products and processed meats.

In 2008, merchandise imports increased by 61.2% (measured in U.S. dollars) compared to 2007. In 2009, merchandise imports decreased by 23.9% (measured in U.S. dollars) compared to 2008, due to a significant decrease in imports of intermediate goods. In 2010, merchandise imports increased by 24.8% (measured in U.S. dollars) compared to 2009, as a result of a general increase in all imported items, mainly motor vehicles and consumption goods. In 2011, merchandise imports grew by 24.4% (measured in U.S. dollars) compared to 2010, driven by an increase across all imported items, which was particularly strong for intermediate and consumption goods. In 2012, merchandise imports increased by 8.6% (measured in U.S. dollars) compared to 2011, mainly due to an increase in imports of intermediate and consumption goods.

A significant portion of Uruguay’s merchandise trade has involved its neighbors and principal trading partners, Argentina and Brazil. With the initial consolidation of the Mercosur in the 1990’s, Brazil and Argentina became Uruguay’s principal trading partners. By 1998, those two countries together accounted for more than 50% of Uruguay’s exports. This regional concentration has subjected Uruguay’s economy to the volatility that has characterized the economies of Uruguay’s neighbors. To mitigate the adverse impact on Uruguay’s foreign trade resulting from imbalances that develop within Mercosur, the government has actively promoted Uruguayan exports in markets outside Mercosur within the framework of regional as well as bilateral agreements. See “República Oriental del Uruguay—Foreign Policy and Membership in International Regional Organizations.” The increased competitiveness of Uruguayan exports since 2002 initially resulted in exports to the region becoming less significant as a percentage of Uruguay’s total exports.

Mercosur member states remain the main destination of Uruguay’s exports and source of its imports. Exports to Argentina and Brazil accounted for 22.2% of total exports in 2008, 23.4% in 2009, 25.8% in 2010, 24.8% in 2011 and 22.7% in 2012. Even more significantly, Argentina and Brazil accounted for 42.6% of total imports in 2008, 44.7% in 2009, 35.3% in 2010, 38.1% in 2011 and 32.9% in 2012. In 2012, exports to Brazil included plastics, cereals, milk and dairy products, exports to Argentina were concentrated in motor vehicles and parts, machinery and electrical products, and Venezuela was the destination primarily of milk and dairy products.

The United States is another of Uruguay’s major trading partners. While Uruguay’s merchandise imports from the United States have fluctuated in recent years (as a percentage of total imports), the United States attracted an increasing percentage of Uruguay’s total merchandise exports after the 2002 crisis reaching a historical record of 21.1% of total exports in 2005. Exports to United States declined significantly in 2008, accounting for only 3.2% of total exports due to a decline in the demand by the United States mainly of processed meats. In 2009, the weight of exports to the United States decreased further to 2.9% of total exports, while imports of goods from the United States accounted for 8.2% of total imports. In 2010, exports to the United States once again decreased to 2.5% of total exports while imports accounted for 9.9% of total imports. In 2011, the weight of exports to the United States slightly increased to 2.7% of total exports whereas imports accounted for 10.3% of total imports. In 2012, the weight of exports to the United States increased once more to 3.4% of total exports, while imports from the United States decreased slightly to 8.9% of total imports.

 

D-35


Uruguay has diversified and increased substantially its merchandise exports over time. In 2008, merchandise exports totaled US$6.7 billion, 37.9% higher than in 2007. The trend was reversed in 2009, with merchandise exports totaling US$6.2 billion, a decrease of 8.4% compared to 2008. In 2010, merchandise exports increased by 25.4% compared to 2009, to US$7.7 billion, driven mainly by non-traditional exports. In 2011, merchandise exports totaled US$8.9 billion, a 15.3% increase compared to 2010, again primarily due to the growth in non-traditional exports. In 2012, merchandise exports amounted to US$9.6 billion, a 7.9% increase compared to 2011, driven by a significant increase in non-traditional exports, which more than offset a decrease in traditional exports compared to 2011.

Merchandise exports have historically been concentrated on agriculturally based traditional and manufactured products, such as wool, meat, rice and textiles. Uruguay was first declared free of foot and mouth disease in 1995. This measure granted Uruguay access to broader markets and allowed it to obtain higher prices for its beef. Uruguay’s traditional export markets include Brazil, Chile, Israel and the European Union. Exports of Uruguayan beef (in U.S. dollars) increased by 46.5% in 2008 compared to 2007. Since 2008, paper pulp accounts for a significant portion of Uruguay’s exports, representing 8.0% of total exports in 2011. In 2009, exports of agricultural products increased by 38.1% and other foodstuffs increased by 12.3%. However, exports of all other products, except for wheat and rice, decreased in 2009 compared to 2008. In 2010, exports of agricultural products, dairy products and processed meat increased by 43.7%, 40.5% and 14.7%, respectively, compared to 2009. Exports of wheat and rice in 2010 decreased by 15.2% compared to 2009. In 2011, exports of processed meat, dairy products and motor vehicles and parts increased by 19.0%, 32.9% and 61.2% respectively, compared to 2010, while exports of paper pulp decreased by 5.3% compared to 2010. In 2012 exports of agricultural products, dairy products and wheat and rice increased by 66.0%, 13.9% and 10.5%, respectively, compared to 2011; however, exports of motor vehicles and parts, paper pulp and textile decreased by 54.9%, 14.4% and 14.2%, respectively, each as compared to 2011.

Imports have increased over time and become more diverse due to a combination of factors, including increased production and economic activity and the reduction of tariff and non-tariff import barriers. In 2008, total imports increased by 61.2%, of which 17.6% represented consumer goods, 67.4% intermediate goods and 15.0% capital goods. In 2009, total imports decreased 23.9%, of which consumer goods accounted for 22.0%, intermediate goods accounted for 62.2% and capital goods accounted for 15.8%. In 2010, total imports increased by 24.8%, of which 23.5% represented consumer goods, 59.7% intermediate goods and 16.8% capital goods. In 2011, total imports increased by 24.4%, of which 23.4% represented consumer goods, 61.6% intermediate goods and 14.9% capital goods. In 2012, total imports increased by 8.6%, of which 22.8% represented consumer goods, 63.8% intermediate goods and 13.4% capital goods.

 

D-36


The following tables set forth information on exports and imports for the periods indicated.

Merchandise Trade

(in millions of US$ and % of total exports/imports)

 

    2008     2009     2010     2011(1)     2012(1)  

EXPORTS (FOB)

                   

Agricultural products

  US$ 599        8.9   US$ 827        13.4   US$ 1,188        15.4   US$ 1,236        13.9   US$ 2,052        21.3

Processed meats

    1,496        22.2        1,237        20.1        1,419        18.3        1,688        18.9        1,822        18.9   

Dairy products

    429        6.4        371        6.0        521        6.7        692        7.8        788        8.2   

Wheat and rice mills

    463        6.9        466        7.6        396        5.1        485        5.4        536        5.6   

Other foodstuffs

    476        7.1        535        8.7        572        7.4        651        7.3        624        6.5   

Textiles

    189        2.8        144        2.3        190        2.5        240        2.7        206        2.1   

Leather goods

    249        3.7        163        2.6        198        2.6        228        2.6        243        2.5   

Paper pulp

    512        7.6        483        7.8        754        9.7        714        8.0        611        6.3   

Chemicals

    392        5.8        339        5.5        414        5.3        512        5.7        558        5.8   

Oil and refined products

    188        2.8        75        1.2        127        1.6        56        0.6        89        0.9   

Plastic products

    152        2.3        138        2.2        164        2.1        204        2.3        210        2.2   

Motor vehicles and parts

    165        2.5        132        2.1        191        2.5        308        3.5        139        1.4   

Other

    1,424        21.2        1,260        20.4        1,606        20.7        1,911        21.4        1,746        18.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total exports

  US$ 6,734        100.0   US$ 6,170        100.0   US$ 7,740        100.0   US$ 8,925        100.0   US$ 9,624        100.0
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

IMPORTS (CIF)

                   

Consumer goods

  US$ 1,598        17.6   US$ 1,520        22.0   US$ 2,025        23.5   US$ 2,514        23.4   US$ 2,653        22.8

Intermediate goods

    6,109        67.4        4,293        62.2        5,148        59.7        6,612        61.6        7,438        63.8   

Capital goods

    1,362        15.0        1,093        15.8        1,449        16.8        1,600        14.9        1,560        13.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total imports

  US$ 9,069        100.0   US$ 6,906        100.0   US$ 8,622        100.0   US$ 10,726        100.0   US$ 11,651        100.0
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Merchandise trade balance

  US$ (1,714     US$ (504     US$ (527     US$ (1,431     US$ (2,310  
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

 

(1)

Preliminary data.

Source: Banco Central.

 

D-37


Geographical Distribution of Merchandise Trade

(in millions of US$ and % of total exports/imports)

 

    2008     2009     2010     2011(1)     2012(1)  

EXPORTS (FOB)

                   

Americas:

                   

Argentina

  US$ 507        7.5   US$ 347        5.6   US$ 575        7.4   US$ 588        6.6   US$ 505        5.2

Brazil

    988        14.7        1,098        17.8        1,419        18.3        1,625        18.2        1,689        17.5   

United States

    214        3.2        177        2.9        195        2.5        244        2.7        324        3.4   

Other

    1,057        15.7        758        12.3        930        12.0        1,161        13.0        1,303        13.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Americas

    2,766        41.1        2,380        38.6        3,119        40.3        3,618        40.5        3,821        39.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Europe:

                   

European Union:

                   

France

    34        0.5        28        0.5        31        0.4        41        0.5        33        0.3   

Germany

    212        3.1        158        2.6        238        3.1        302        3.4        259        2.7   

Italy

    143        2.1        115        1.9        144        1.9        158        1.8        130        1.4   

United Kingdom

    172        2.6        142        2.3        109        1.4        122        1.4        118        1.2   

Other EU

    558        8.3        367        5.9        441        5.7        524        5.9        396        4.1   

Total EU

    1,120        16.6        811        13.1        963        12.4        1,147        12.9        936        9.7   

EFTA(2) and other

    536        8.0        391        6.3        646        8.3        748        8.4        686        7.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Europe

    1,656        24.6        1,202        19.5        1,609        20.8        1,895        21.2        1,622        16.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Africa

    210        3.1        210        3.4        216        2.8        288        3.2        334        3.5   

Asia

    435        6.5        462        7.5        603        7.8        821        9.2        1,143        11.9   

Middle East

    303        4.5        349        5.7        234        3.0        304        3.4        380        3.9   

Free Trade Zone(3)

    790        11.7        765        12.4        1,015        13.1        1,012        11.3        885        9.2   

Other

    572        8.5        803        13.0        945        12.2        986        11.0        1,442        15.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  US$ 6,732        100.0   US$ 6,171        100.0   US$ 7,741        100.0   US$ 8,924        100.0   US$ 9,627        100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

IMPORTS (CIF)

                   

Americas:

                   

Argentina

  US$ 2,250        24.8   US$ 1,628        23.6   US$ 1,469        17.0   US$ 2,004        18.7   US$ 1,741        14.9

Brazil

    1,618        17.8        1,460        21.1        1,578        18.3        2,082        19.4        2,097        18.0   

United States

    530        5.8        564        8.2        855        9.9        1,101        10.3        1,041        8.9   

Other

    1,073        11.8        845        12.2        1,241        14.4        1,088        10.1        1,523        13.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Americas

    5,471        60.3        4,497        65.1        5,143        59.6        6,275        58.5        6,402        54.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Europe:

                   

European Union:

                   

France

    102        1.1        83        1.2        137        1.6        187        1.7        189        1.6   

Germany

    142        1.6        168        2.4        198        2.3        258        2.4        248        2.1   

Italy

    117        1.3        119        1.7        161        1.9        148        1.4        153        1.3   

United Kingdom

    56        0.6        52        0.8        72        0.8        125        1.2        98        0.8   

Other EU

    315        3.5        278        4.0        364        4.2        564        5.3        555        4.8   

Total EU

    733        8.1        700        10.1        931        10.8        1,282        12.0        1,242        10.7   

EFTA(2) and other

    53        0.6        352        5.1        397        4.6        327        3.0        895        7.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Europe

    786        8.7        1,052        15.2        1,328        15.4        1,609        15.0        2,137        18.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Africa

    309        3.4        123        1.8        408        4.7        541        5.0        399        3.4   

Asia

    1,359        15.0        1,161        16.8        1,652        19.2        2,196        20.5        2,467        21.2   

Middle East

    37        0.4        49        0.7        63        0.7        69        0.6        100        0.9   

Other

    1,108        12.2        25        0.4        28        0.3        37        0.3        147        1.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  US$ 9,070        100.0   US$ 6,907        100.0   US$ 8,622        100.0   US$ 10,727        100.0   US$ 11,652        100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Preliminary data.

(2)

European Free Trade Association.

(3)

Reflects exports from Uruguay to the free trade zones within its territory, for further export, typically as part of a manufactured good comprising inputs produced in third countries, to destinations of which Uruguay does not maintain statistics.

Source: Banco Central.

 

D-38


FOREIGN TRADE ON SERVICES

Uruguay’s services trade has traditionally been heavily concentrated on Argentina and Brazil and has been driven principally by tourism, transportation and financial services and, since 2007, transactions made from free economic zones.

Gross tourism receipts increased by 29.9% in 2008 and the number of tourist arrivals increased by 10.0% in the same year. Gross tourism receipts and the number of tourists arrivals increased by 24.8% and 5.1%, respectively, in 2009. Also a higher per capita level of expenditures has contributed to improve gross tourism receipts. In 2010 and 2011, gross tourism receipts and the number of tourists arrivals increased again by 14.0% and 46.2% and by 14.7% and 22.9%, respectively. In 2012, both gross tourism receipts and the number of tourists arrivals decreased by 5.1% and 3.8%, respectively.

Revenues from Tourism

 

     Number of
Tourist Arrivals

(in thousands)
     Gross Tourism
Receipts

(in millions of US$)
 

2008

     1,998         1,051   

2009

     2,099         1,312   

2010

     2,408         1,496   

2011

     2,960         2,187   

2012

     2,846         2,076   

 

Source: Banco Central.

During the 1990s, Uruguay’s tourism sector benefited from the improving economic situation in the region, particularly in Brazil and Argentina, and the increased sophistication of the services offered, including increased and diversified offerings of cultural, social and sports activities. There was an increase in repeat weekend travelers to Punta del Este, and through 1997 an increase in ownership of houses and apartments in this beach area mainly by tourists from Argentina, followed by others from Brazil, Paraguay, the United States and, in third place, European countries. New tourism services in regions outside of Punta del Este have also developed, in particular in the northern part of Uruguay where there are several thermal baths and tourist “estancias,” or ranches, which attract tourists from regional and urban areas and from Europe and the United States during Uruguay’s low season in winter. The total number of tourists increased steadily since 2008 to 2011 increasing by 5.1%, 14.7% and 22.9% in 2008, 2009, 2010 and 2011, respectively. In 2012, the total number of tourist slightly decreased by 3.8% compared to the previous year. Tourism from, as well as trade with or transiting through, Argentina during the period 2007-2010 was adversely affected by the interruption of international traffic caused by Argentine demonstrators opposing the construction of the pulp mill in the Fray Bentos region. This interruption ceased at the end of 2010.

 

D-39


The following table sets forth the percentage of tourist arrivals from Argentina, Brazil and other countries for the periods indicated.

Tourist Arrivals

(% by country)

 

     2008     2009     2010     2011     2012  

Argentina

     52.4     54.8     52.4     58.2     62.0

Brazil

     14.9        12.6        15.7        14.4        13.9   

Other

     32.7        32.6        32.0        27.4        24.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100.0     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Sources: Banco Central and the Ministry of Tourism.

Until the 2002 banking crisis, financial and insurance services, primarily banking and corporate services, contributed to the growth in services exports. Uruguay’s bank secrecy laws and the ability of companies to issue bearer shares attracted foreign funds. Deposits by non-residents with the financial sector totaled approximately US$6.6 billion at December 31, 2001. In 2002, deposits by non-residents with the financial sector decreased significantly to less than US$2.3 billion at December 31, 2002, including approximately US$1.2 billion held with BGU, Banco de Crédito, Banco Montevideo and Banco Comercial, all of which had their operations suspended and have since been liquidated or, in the case of BGU, closed. Following the banking crisis in 2002, deposits by non-residents began to recover, reaching US$3.7 billion as of December 2012, representing 21.4% of total foreign currency deposits held by the non-financial private sector with the Uruguayan banking system (excluding deposits held with banks in liquidation).

In 2012, as part of Uruguay’s efforts to enhance tax transparency, Congress enacted a law to improve access to information regarding share ownership of Uruguayan companies. This law creates a registry to be held with Banco Central where every holder of bearer shares of a Uruguayan company will have to be registered. In addition, in 2012 the tax authorities of Uruguay and Argentina entered into a cooperation agreement to facilitate sharing of tax information. This agreement was ratified by Congress in January 2013.

 

D-40


BALANCE OF PAYMENTS

In 2012, Uruguay’s balance of payments registered a surplus of US$3.3 billion compared to a surplus of US$2.6 billion in 2011, a deficit of US$360.8 million in 2010, a surplus of US$1.6 billion in 2009 and a surplus of US$2.2 billion in 2008. Banco Central’s international reserve assets stood at US$13.6 billion at December 31, 2012, compared to US$10.3 billion at December 31, 2011, US$7.7 billion at December 31, 2010, US$8.0 billion at December 31, 2009 and US$6.4 billion at December 31, 2008.

Balance of Payments(1)

(in millions of US$)

 

     2008     2009     2010(2)     2011(2)     2012(2)  

Current Account

          

Merchandise trade balance

   US$ (1,714.2   US$ (503.9   US$ (527.0   US$ (1,431.1   US$ (2,310.4

Exports

     7,095.5        6,391.8        8,030.7        9,274.0        9,906.6   

Imports

     (8,809.7     (6,895.7     (8,557.7     (10,705.1     (12,217.0

Services, net

     753.4        1,024.8        1,157.2        1,547.8        1,059.4   

Interests and dividends

     (916.6     (1,040.6     (1,501.0     (1,612.4     (1,465.2

Current transfers(3)

     148.4        138.0        118.0        128.5        90.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current account

   US$ (1,729.0   US$ (381.7   US$ (752.7   US$ (1,367.2   US$ (2,625.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Capital and Financial Account

          

Capital transfers

   US$ 0.2      US$ —        US$ —        US$ —        US$ 40.0   

Direct Investment

     2,116.6        1,512.2        2,348.8        2,511.6        2,707.8   

Portfolio Investment(4)

     (557.7     (821.2     (654.1     1,976.3        1,644.4   

Other medium and long term capital

     442.9        928.9        (529.6     4.2        33.4   

Other short term capital

     1,095.6        (435.9     (79.8     (290.3     (423.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total capital and financial account, net

   US$ 3,097.6      US$ 1,183.9      US$ 1,085.3      US$ 4,201.7      US$ 4,001.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Errors and Omissions(5)

   US$ 863.7      US$ 786.1      US$ (693.4   US$ (270.1   US$ 1,910.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total balance of payments

   US$ 2,232.4      US$ 1,588.3      US$ (360.8   US$ 2,564.4      US$ 3,287.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in Banco Central reserve assets(6)

   US$ (2,232.4   US$ (1,588.3   US$ 360.8      US$ (2,564.4   US$ (3,287.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gold(7)

     (0.0     (0.0     (0.0     0.0        (0.4

SDRs

     4.0        380.9        (0.1     0.1        (0.2

IMF Position

     —          —          95.0        50.4        8.9   

Foreign Exchange

     (401.5     712.0        (1,370.2     1,122.5        524.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other holdings

     2,630.0        495.4        914.4        1,391.4        2,753.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   US$ 2,232.4      US$ 1,588.3      US$ (360.8   US$ 2,564.4      US$ 3,287.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Calculated in accordance with the methodology set forth in the IMF Balance of Payments Manual (Fifth Edition).

(2) 

Preliminary data.

(3) 

Current transfers consist of transactions without a quid pro quo, including gifts.

(4) 

Includes public bonds, commercial paper, notes and commercial banks’ foreign portfolio investment.

(5) 

Constitutes a residual item, which is periodically revised as additional information regarding the current and capital and financial accounts becomes available.

(6) 

Change in Banco Central international reserve assets does not reflect adjustments in the value of gold.

(7) 

As presented in this chart, gold reserves have been valued at their corresponding market prices as of December 31 of each year.

Source: Banco Central.

Current Account

Uruguay’s current account consists of the merchandise trade balance, foreign trade on services net, interest and dividend payments, and current transfers.

 

D-41


In 2008, the current account recorded a deficit of US$1.7 billion. The significant increase in the trade deficit was attributable mainly to imports of oil for electricity generation, required to cover the power generation deficit that resulted from the impact of the drought on domestic hydroelectric generation capacity.

In 2009, the current account deficit dropped to US$381.7 million, reflecting mainly a significant decrease in the merchandise trade deficit. While both exports and imports of goods and services contracted as a result of the adverse global economic environment in 2009, exports contracted at a slower pace than imports, at rates of 9.7% and 24.4%, respectively.

In 2010, the current account recorded a deficit of US$752.7 million. This deficit was attributable to an increase in interest and dividend payments, primarily due to increased remittance of corporate profits to foreign shareholders of direct investments made in prior years.

In 2011, the current account recorded a deficit of US$1.4 billion. The increase in the current account deficit was mainly attributable to an increase in the merchandise trade deficit while interest and dividend payments and current transfers did not record significant changes. The increased deficit in merchandising trade was partially offset by an increase in the inflows from foreign trade on services, net.

In 2012, the current account recorded a deficit of US$2.6 billion. The increase in the deficit compared to the previous year was mainly attributable to an increase in the merchandise trade deficit and a decrease in the surplus in foreign trade on services, net.

Capital and Financial Account

Uruguay’s capital and financial account includes capital transfers, direct investments, portfolio investments, other medium- and long-term capital and other short term capital.

In 2008, Uruguay’s capital and financial account recorded a surplus of US$3.1 billion, mainly related to a significant increase in capital and financial inflows as foreign direct investment reached US$2.1 billion, offsetting net portfolio investment outflows of US$557.7 million.

The outburst of the international financial crisis in September 2008 resulted in a decrease in capital inflows. Furthermore, capital inflows during the fourth quarter of 2008 comprised primarily proceeds of short-term loans made to the public sector by multilateral financial institutions, while net portfolio investments became negative as investors reacted to volatility in the capital markets during that period.

In 2009, Uruguay’s capital and financial account recorded a surplus of US$1.2 billion, reflecting a decrease in capital and financial inflows to both the public and the private sector.

Capital inflows to the public sector comprised primarily the proceeds of financing provided by multilateral financial institutions and borrowings from the international capital markets. On the other hand the private sector, registered substantially lower capital inflows as a result of the slowdown of foreign direct investment which totaled US$1.5 billion in 2009. In 2009, net portfolio divestments continued to grow, totaling US$821.2 million and short-term capital resulted in outflows of US$435.9 million.

 

D-42


In 2010, Uruguay’s capital and financial account recorded a surplus of US$1.1 billion. mainly resulting from an increase in foreign direct investment, which offset the decrease in portfolio investments and in other medium and long-term capital.

In 2011, Uruguay’s capital and financial account recorded a surplus of US$4.2 billion mainly as a result of inflows generated by foreign direct investment, which reached US$2.5 billion and a surge of portfolio investment reflecting improved conditions in the risk perception of Uruguay’s sovereign debt in the international capital markets.

Similarly, in 2012, Uruguay’s capital and financial account recorded a surplus of US$4.0 billion mainly as a result of inflows generated by foreign direct investment, which reached US$2.7 billion, and portfolio investment, which reached US$1.6 billion.

In August 2012, Banco Central set forth certain requirements for the purchase by non-residents of Central Bank bonds issued in pesos or UIs. Non-residents, through local financial institutions, must deposit with Banco Central a percentage of the investment made in Banco Central’s debt. This deposit cannot be withdrawn until the security is transferred to a Uruguayan resident or a foreign investor that has previously satisfied the prior-deposit requirements or redeemed by Banco Central. The minimum percentage that investors are required to deposit with one or more local financial institutions was originally set at 40%. In June 2013 this percentage was raised to 50%.

In June 2013, Uruguay implemented similar requirements for the purchase by non-residents of local treasury bills and bonds issued in pesos or UIs. The minimum percentage that non-residents must deposit with one or more local financial institutions is 50% of the investment made in these bills and bonds.

International Reserves

As of December 31, 2012, the international reserve assets of Banco Central stood at US$13.6 billion, compared to US$10.3 billion at December 31, 2011. The following table shows the composition of the international reserve assets of Banco Central, and the banking system at each of the dates indicated.

International Reserve Assets of the Banking System(1)

(in millions of US$)

 

     As of December 31,  
     2008     2009     2010     2011     2012  

Banco Central

   US$ 6,360 (2)    US$ 7,987 (3)    US$ 7,656 (4)    US$ 10,302 (5)    US$ 13,605 (6) 

Of which gold represents

     7        9        12        12        13   

Public Banks

     1,858        1,656        2,133        1,491        1,766   

Private Banks

     3,506        4,525        5,301        4,124        3,866   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

International reserve assets

   US$ 11,724      US$ 14,168      US$ 15,090      US$ 15,917      US$ 19,237   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

All figures are at market value as of the date indicated.

(2) 

This amount includes US$3,156 million of reserves and voluntary deposits of the Uruguayan banking system, including US$1,428 million of Banco de la República and other public sector financial institutions, with Banco Central.

(3) 

This amount includes US$2,521 million of reserves and voluntary deposits of the Uruguayan banking system, including US$1,140 million of Banco de la República and other public sector financial institutions, with Banco Central.

(4) 

This amount includes US$1,590 million of reserves and voluntary deposits of the Uruguayan banking system, including US$792 million of Banco de la República and other public sector financial institutions, with Banco Central.

(5) 

This amount includes US$2,350 million of reserves and voluntary deposits of the Uruguayan banking system, including US$1,108 million of Banco de la República and other public sector financial institutions, with Banco Central.

(6) 

This amount includes US$3,969 million of reserves and voluntary deposits of the Uruguayan banking system, including US$1,642 million of Banco de la República and other public sector financial institutions, with Banco Central.

Source: Banco Central.

 

D-43


As of May 31, 2013, Banco Central’s international reserve assets totalled US$14.9 billion (of which gold represented US$11 million), including US$4.8 billion in reserves and voluntary deposits of the Uruguayan banking system, of which US$1.9 billion were claims of Banco de la República and other public sector financial institutions.

The voluntary deposits and reserves held with Banco Central by the Uruguayan banking system can be withdrawn by banks at any time. Changes in Banco Central’s policies and other external factors, including interest rates, affecting the banks’ medium- and long-term portfolio decisions could cause and, in the past, have caused the banks to withdraw these voluntary deposits. Variations in commercial bank reserves and voluntary deposits of the Uruguayan banking system with Banco Central, cause Banco Central’s international reserve assets to fluctuate from time to time.

Foreign Investment

Uruguay has a legislative framework that ensures equal treatment of foreign and local investors and foreign access to all economic sectors. Foreign investments in Uruguay generally do not require prior governmental authorization, and foreign investors are not required to register investments with the government and can freely remit their profits and capital investments abroad. Investment in certain sectors, including financial services, requires prior authorization on the same terms as domestic investors.

In each of 2008, 2009, 2010, 2011 and 2012, estimated foreign direct investment accounted for US$2.1 billion, US$1.6 billion, US$2.3 billion, US$2.5 billion and US$2.7 billion, respectively, of Uruguay’s balance of payments.

Foreign investment in Uruguay has been traditionally directed towards the industrial, construction and tourism related sectors and land. Since 2004, however, European pulp manufacturers have invested in the pulp industry in Uruguay approximately US$3.1 billion.

 

D-44


MONETARY POLICY AND INFLATION

Banco Central was established in 1967 and is in charge of issuing currency, managing foreign exchange reserves, regulating the financial and insurance system, as well as pension funds and the securities market, and evaluating and advising the government regarding the establishment of new banks. Banco Central has the principal responsibility for the implementation of monetary policy, intervening in the money market and advising the government on monetary and credit matters in accordance with general objectives set by the government. In addition, it trades in the foreign exchange market and is responsible for the observance of foreign exchange regulations.

Banco Central’s charter was most recently amended in 2010. Under the current charter, the Board of Directors of Banco Central is composed of three members, each serving a five-year term. Each new president of Uruguay is entitled to appoint a new Board of Directors, subject to ratification by the Congress.

Banco Central’s charter defines Banco Central’s monetary and foreign exchange management capacity and its supervisory powers. Under its charter, Banco Central cannot finance the activities of the government except to the extent that it may hold government securities having an aggregate principal amount of up to 10.0% of the central government’s previous year’s expenditures net of interest payments on public debt. However, Banco Central can serve as a financial agent of the government under article 49 of its charter and has a duty under article 3 to ensure the orderly functioning of the payments system.

Law 18,401 created the Corporación de Protección al Ahorro Bancario or Corporation for the Protection of Bank Savings as an agency independent of Banco Central, removing Banco Central’s responsibility for the administration of the mandatory deposit insurance program introduced in 2002. Law 18,401 placed under a single agency, the Superintendencia de Servicios Financieros, the supervision and regulation of the banking sector, and under the Superintendencia de Seguros, Fondos de Pensión y Mercado de Valores, the regulation of insurance companies, the stock market and pension funds.

Monetary Policy

Until June 2002, Banco Central managed Uruguay’s inflation stabilization policy by setting a peso/U.S. dollar exchange rate band that drifted at a present monthly rate of devaluation and allowed the peso/U.S. dollar exchange rate to fluctuate within a band without prompting Banco Central intervention in the foreign exchange markets. This “crawling peg” system succeeded in reducing inflation from a rate of 129.0% (as measured by the CPI) in 1990 to 3.6% in 2001. In June 2001 and January 2002, Banco Central widened the band and accelerated the rate of devaluation of the peso in an attempt to mitigate the ongoing adverse effects on Uruguay’s economy, first of Brazil’s 1999 devaluation and subsequently of Argentina’s devaluation in January 2002. Inflation targets were administered through a foreign exchange policy.

Sensitive to the risk of a run on the currency and to avoid the need to adopt exchange controls and restrict capital flows, Uruguay completed its transition to a fully floating exchange system and floated the peso effective June 20, 2002. Since the peso was allowed to float, Banco Central pursued interventions solely to ensure the orderly operation of the foreign exchange market. As of December 2002, the nominal exchange rate had risen 94.0% in comparison to December 2001. The year-to-year inflation rate for the same period was 25.9%.

 

D-45


Having relinquished the use of exchange rate policies to determine inflation objectives, Banco Central adopted the peso monetary base as a nominal anchor and committed to a monetary base increase one year ahead consistent with the inflation objective set for the period. In 2003 the program was designated to generate an inflation rate between 17.0% and 23.0% and the policy was successful in the sense that the target on monetary base was achieved and inflation rate was lower than projected (10.2%). In the first quarter of 2004 a target range for the monetary base was introduced, which implied more flexibility in the intermediate target and more commitment with inflation itself. Since then, the inflation objective was set to a range with floors and ceilings that declined from quarter to quarter, from 9.0-14.0% in the third quarter of 2004 to 4.5-6.5% by the end of 2006.

In September 2007, Banco Central began defining monetary policy by reference to short term interest rates as the new intermediate target. As a consequence, Banco Central introduced a short-term interest rate that was initially set at 5.0% and established the average money market rate as the instrument to monitor its new inflation target. The interest rate band was set at 4.0-6.0%.

In January 2008, the monetary policy rate was kept constant at 7.25%, but the tolerance of the inflation target range was changed to 3.0-7.0% in recognition of the difficulties to keep a close track of this target in a context of high volatility in commodity and asset prices. On October 3, 2008, Banco Central raised the monetary policy rate to 7.75%, taking into account the strong domestic demand compared to aggregate supply in a context of international uncertainty.

In light of the deepening international financial markets crisis, Banco Central decided, in the last quarter of 2008, to allow a broader fluctuation of the average money market rate. It also established a program to repurchase Peso-denominated Monetary Regulation Bills, giving holders the option to elect the currency of redemption, to reduce volatility in the foreign exchange market. As financial markets recovered stability, Banco Central once again focused on the monetary policy rate as an operational target and raised the rate to 10.0% in January 2009, given the persistent inflationary pressures. In March 2009, the global economic recession scenario, along with the decrease of inflationary expectations in the middle term, contributed to the decision to lower the monetary policy rate to 9.0%. In June 2009, the authorities decided to lower the monetary policy rate further to 8.0% considering inflation performance and as aggregate demand pressures diminished. Although inflationary pressures emerged in the second half of 2009, the monetary policy rate remained unchanged until December 2009. At that time, Banco Central decided to lower the rate to 6.25%, taking into account the decrease of uncertainty in the international context and a favorable assessment of domestic risks. Additionally, in December 2009, it narrowed the inflation target range from 3.0-7.0% to 4.0-6.0%. In September 2010, Banco Central raised the monetary policy rate to 6.50% to mitigate increasing inflationary pressures. In March 2011, Banco Central once again increased the monetary policy rate to 7.50% in response to prevailing inflation expectations for the subsequent 18 months, attributed primarily to inflationary pressures generated by the international markets and a growing domestic demand. In June 2011, Banco Central increased the monetary policy rate from 7.5% to 8.0% in response to prevailing inflation expectations. In December 2011, Banco Central again increased the monetary policy rate to 8.75%. In March 2012, Banco Central decided to maintain the monetary policy rate at 8.75%. In October and December 2012, Banco Central increased the monetary policy rate to 9.0% and 9.25%, respectively, responding to increasing inflation expectations. In June 2013, Banco Central announced that it would discontinue the use of a monetary policy rate determined by reference to a short term interest rate as its principal monetary policy tool and revert to using the monetary base by managing monetary aggregates, focusing on variables such as the amount of money in circulation and bank deposits levels to define monetary levels. Banco Central also broadened the inflation target range from 4.0-6.0% to 3.0-7.0% starting in July 2014. and announced that it expects to maintain this range for 24 months.

 

D-46


To regulate liquidity in the market, Banco Central conducts periodic auctions of Banco Central notes in domestic currency. The ability of Banco Central to implement an effective monetary policy is curtailed by the high degree of dollarization of the Uruguayan economy. While during the past nine years (with the exception of 2008), foreign currency deposits held with the banking system as a percentage of total deposits declined, as of December 31, 2012, 73.9% of all deposits held with the banking system continued to be denominated in foreign currencies (primarily U.S. dollars).

Liquidity and Credit Aggregates

The following tables set forth the composition of Uruguay’s monetary base (expressed in terms of Banco Central’s monetary liabilities) as of the dates indicated.

Monetary Base(1)

(in millions of US$(2))

 

     As of December 31,      As of May 31,  
     2008      2009      2010      2011      2012      2013  

Currency, including cash in vaults at banks

   US$ 1,161       US$ 1,629       US$ 1,899       US$ 2,271       US$ 2,726       US$ 2,391   

Other

     514         584         613         705         995         1,335   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Monetary base

   US$ 1,675       US$ 2,213       US$ 2,512       US$ 2,976       US$ 3,721       US$ 3,726   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Preliminary data.

(2) 

Exchange rate at the end of the period.

Source: Banco Central.

The following tables show selected monetary indicators and liquidity and credit aggregates for the periods indicated.

Selected Monetary Indicators

(percentage change based on peso-denominated data)

 

     2008     2009     2010     2011     2012     For the twelve months
ended March 31, 2013(1)
 

M1 (% change)(2)

     17.9     15.2     30.0     20.8     11.2     6.2

M2 (% change)(3)

     17.3        14.9        31.0        22.1        10.3        6.6   

Credit from the financial system (% change)

     58.7        (13.1     24.1        14.1        18.3        17.3   

Average annual peso deposit rate (end period)

     5.4        4.9        4.8        5.5        5.2        5.7   

Monetary policy rate (TPM)

     7.75        6.25        6.50        8.75        9.00        9.25   

Average money market rate (TMM) (period end)

     4.99        6.20        6.50        8.75        9.00        9.23   

 

(1) 

Preliminary data.

(2) 

Currency in circulation plus peso-denominated demand deposits.

(3) 

M1 plus peso-denominated savings deposits.

Source: Banco Central.

 

D-47


Liquidity and Credit Aggregates

(in millions of US$(1))